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January 27, 2006
Elections in HOAs in California
Still concerned about SB 61 and elections in the coming year? So am I. I was at a national common interest development law conference this week and one of the sessions was on membership meetings, elections, proxies and the conduct of the "players". Attorneys from all over the country who practice law relating to deed restrictions and CC&Rs and homeowner associations were interacting with 4 attorney panelists ("experts" in CID law). Some interesting things were discussed. While discussing what happens at meetings, nominations from the floor, use of proxies, cumulative voting and other corporate voting matters, one comment that was made by an Arizona attorney was: "In our state, a law was passed last year that requires the absentee type of voting by mail ballot which creates all kinds of problems for associations whose documents allow for proxies and nominations from the floor. Associations are calling our office and asking what they need to do." Sound familiar?
California legislators are quite known for approving legislation for HOAs that puts associations in a position of needing legal help to figure out how to comply. The latest award for this goes to Senator Battin of the Coachella Valley area, for SB 61. An HOA will have great difficulty understanding how to resolve differences between the law and its governing documents. And elections may unravel before your very eyes as owners challenge processes in small claims court claiming a board's failure to successfully integrate the docs provisions with other laws they have heard about and with the new elections requirements. I am an attorney. I should be cheering - more work for me - eh? But what I am doing is sending suggested changes to the law that would better explain what is required. That is what I would like to see - although I do not hold out much hope that it will happen.
Secret and above-board voting processes, protecting owners' privacy, and on the other side achieving important ballot measures that are much needed by HOAs are what is at stake here. The public is sold on one side of the issue - HOAs need to treat owners equally and be fair and evenhanded in treatment of members. I agree. However, it is difficult to legislate that with detailed, complicated laws. And there is a need for volunteer board members and the "job" is getting harder and harder. Boards need to seek out professional help and that costs money and owners complain about the costs. As more and more board members get threatened with lawsuits, which problem seems to escalate as more and more practices are legislated, the available board member "pool" diminishes. Then what happens? The consumer suffers. Keep an eye on my website (www.californiacondoguru.com) for changes and updates on new laws, and how to cope. Hopefully, you can get enough insight from the site that you will know what is the best course of action to go forward, and meet the legislative requirements for your HOA. I do not give legal advice on the site itself, but I do post a lot of information on what is happening and because of certain realities, caution HOAs that are self-managed that failure to seek out the right kind of help can result in disastrous conseqences. Everything is OK as long as it is OK - right?
Posted by Beth Grimm at 11:22 PM
Withholding Proxies Given By Owners - Is it a Good Idea?
If there is a membership meeting in an HOA and there is an important voting measure at stake, sometimes owners collect proxies and withhold them (fail to check them in at the meeting) so that there will not be a quorum and the meeting has to be adjourned. A board might send everyone home. If there is a quorum and a vote is taken and the measure is voted up or down, that might effectively resolve matters once and for all. If there is no quorum, 5% of owner(s) might raise the issue again, by submitting a legally proper petition for another meeting on the same subject.
In any case, if there is a legal vote it supports rejecting future votes on the same issue (although the facts would have to be examined in any particular situation to determine the risks and benefits of denying a legally valid petition). If the association members have already been informed as to an issue, and those who wanted had an opportunity to have their vote counted, a board might not need to honor a duplicative petition on the same issue (consult with your own legal counsel if the situation arises).
Thus, any owner that holds proxies back and does not turn them in may be promoting furtherance of a particular issue, rather than resolution or an end to it.
But there is more to be said. If someone collects proxies and gives the owner who signs the proxy an expectation that that person will carry forward a certain message, the person who assigned the proxy expecting it to be turned in and a vote lodged on their behalf will not have their expectation met.
The press and legislators in this state complain about boards left and right. However, the games that owners play can be just as frustrating and unfair as something a board does. It really places a burden on an association when an owner holding several proxies (I have seen this happen with someone holding as many as 100 or more proxies) withholds them until the last person has signed in for a meeting. If you are a board member or a person that checks in owners at a meeting, you know how this kind of "tactic" can disrupt a meeting and delay important matters, such as determining if a quorum is even present.
I do not recommend these kinds of games, and under the new elections law, a board might be able to enforce a firm cutoff time for return of ballots or proxies which would, hopefully, discourage this kind of practice. Consult with your own attorney of course. These comments are not to be construed as legal advice, just food for thought.
Posted by Beth Grimm at 10:59 PM
January 21, 2006
Manager Training and Designations - Who Does It? Where Do You Find Them?
Recently I was asked by a reader what CAM stands for and where can one get a list of all CAMs in California. Speaking in "California-tongue", and for these purposes CAM stands for "Community Association Manager". That general terminology is not to be confused with CCAM which is a commonly heard acronym that stands for the California Community Association Manager which is the designation of a group called California Association of Community Association Managers (CCAM), or PCAM which stands for Professional Community Association Manager which is a designation for a professional manager trained by the Community Associations Institute (CAI), a national organization with regional chapters in every state.
In California, managers that had the above-mentioned designations as of July 3, 2003 and within that designation had covered all of the areas required for manager training (which are enumerated in a statute in California) is entitled to call themselves as "Certified Common Interest Development Manager". Others who did not have an accepted designation by that date have to complete 30 hours of education in community association manager classes. See more on this below and on the guru website.
Community Associations with regard to the common interest development form of housing to are essentially the same thing as homeowners associations.
Now, taking a step back, and to confuse things further, a "Property Manager", although being trained and with certain property management designations behind their name, may or may not have the specific expertise needed to manage a CID/HOA/Community Association or even a CID/industrial/commercial property. It takes special training because these entities have special rules and regulations found in the Davis Stirling Common Interest Development Act.
In searching for the right manager for your CID/HOA/Community Association, ask if the manager qualifies as a "Certified Common Interest Development Manager", or is in the process of getting the education required to qualify. CCIDS (a sensible acronym for the above) have education and experience. There are many managers that have lots of experience but do not have a specific designation, and some of those are either seeking a designation or taking educational courses to qualify them to call themselves a CCIDM. There is no requirement for an Association to use a CCDIM, but of course, it is important to have someone doing the work that has the specialized eduction and training needed.
In order to be called a "Certified Common Interest Development Manager," (or CCIDM) a person must meet one of the following requirements:
(a) Prior to July 1, 2003, ... had achieved a certain designation by a CAI or CACM and within five years prior to July 1, 2004, received instruction in California law as required by the statute. (Note, you can visit their websites to find out what designations qualify - at www.cacm.org and www.caionline.org.)
(b) On or after July 1, 2003, has successfully completed an educational curriculum that shall be no less than a combined 30 hours in coursework described in Business and Professions Code Section 11502 and passed an examination or examinations that test competence in common interest development management in various identified areas.
California Business and Professions Code Section 11502/11502.5 set the requirements to be called a CCDIM or similar name. You can also find out more information on my website -
One does not have to be a PCAM or CCAM to qualify as a "Certified Common Interest Development Manager". Since managers are required to disclose designations and special qualifications to HOAs before contracting with them per Civil Code Section 1363.1, and are required by 11504 to disclose these before contracting and on an annual basis to HOAs they manage, an HOA can find out if the manager is or is not qualified to call themselves Certified as a CID Manager, and what, if any, designations they have.
There is no general registry of community association managers (CAMs) in the state, but you may be able to get a list of the managers with designations through the CACM and CAI websites mentioned.
Posted by Beth Grimm at 2:16 PM
January 7, 2006
Apathy - The Continuing Saga - and Worse Case Scenario
The questions about what to do when no one will serve on the Board or come to Board meetings are common. One reader recently asked "What happens when an association hold [sic] its 'annual meeting' and there are no candidates or nominees and there are now only 2 board member [sic] out of 5 position [sic]. And only six people showed up for the meeting out of 116 units."
I would say that this association is very likely headed for trouble. Unforetunately it is up to the 2 remaining board members serving to get out and "recruit" board members, or take the Association down the path to receivership. Incidentally, even one remaining board member has the power and authority to appoint board members. This is one exception to the need for majority approval for Board actions. The documents may prevent 2 out of 5 from making valid decisions or taking action. If that is so, then any action taken by these 2 can be found to be either void, for failure of a quorum, or "ultra vires" (outside the corporate authority) except for the appointment of additional board members. These remaining board members should be concerned about personal liability and about the future of the Association, having assumed the positions.
If no owners are willing to serve, the worst thing (but not that uncommon) for these remaining board members to do is resign and leave no one in charge. This is what can happen (and has, in my experience representing clients). There are lots of possible events that can occur. Eventually, someone tries to sell and there is no one to fulfill the Association's duty to provide seller/buyer requested escrow documents. People start asking questions and the realtors and the seller come to the conclusion there is no "active" association. Lenders will no longer finance the units. That's getting into the end run-worse case scenario.
Of course, there are many interim problems likely to occur. No one collects assessments; no one pays the bills. If this is a condo the water may be turned off. The landscaping fails either because the water is off, or the gardeners have quit for failure to get paid, or both. The buildings and/or common area fall into disrepair. The insurance protecting the Association, the Association members, and the Board members lapses and there is therefore no insurance protection to pay for the defense of the board members breach of fiduciary duty. Chances are the governing documents protect the board members through "indemnification" clauses so the Association owners may pay any claims out of pocket, or if the "indemnification" clause fails because the Board members' leaving was considered "gross negligence" or because they are no longer Board members, then the Board members are subject to being sued individually, and they may end up paying the bulk of damages or losses.
And ... people may start constructing otherwise prohibited improvements; people may stop following parking rules or restrictions, and people may stop honoring pool rules. Some things that happen may be irreversible.
There is a host of potential problems, but the worst brunt of things may fall on the last remaining or two remaining board members, for abandoning ship.
The choices left to Board members who are burned out or owners who determine there is no longer a board include the right to petition the court to have a "receiver" approved. Whether and where the money is raised or put forth for these actions is a question for legal counsel.
Sometimes this hopeless scenario can be resolved with a letter to the owners warning of the dire consequences of not having anyone willing to step up and serve. The letter can explain that going into receivership is no picnic, and not the best choice for the Association. The members will have to pay the cost of a receiver, and before falling into this catch-22 situation, should be given the option of paying for association management instead. Good management can relieve Board members of the heaviest portion of the burden of volunteer service, and that may encourage more service.
To be continued... the new elections laws that take place July 1 require the offer of absentee voting to the members and some say this could discourage meeting attendance. It is important to consider this, and try to counter any effects by generating a meeting scenario (perhaps a social??) that people will attend - because it is often from these meetings that interest in serving (or opportunity for "recruiting") occurs.
Posted by Beth Grimm at 9:39 PM
CORPORATE COMPLIANCE NOTICES - A SHAM OR A BRILLIANT MARKETING PLOY??
If your homeowners association is a corporation in California (and most are), it is likely that you as the person listed as the contact for the Association have received an "Annual Minutes Compliance Notice" (which looks like an official corporate compliance warning notice) in the mail recently. From the looks and feel of it, one (without the savvy needed to truly understand it) would feel the eyes of the Secretary of State - Department of Corporations on them! The notice in my humble opinion makes it look like you had better reply because if you fall out of compliance, terrible things will happen to the Corporation. (Reminds me of the warning notices on new mattresses, making you wonder if the mattress police are standing by waiting for you to rip the label off!).
If you are under the impression that sending in $125 to get a set of minutes is the only way to save the Corporation from doom, read on. Anyone can buy a list of the contacts for all California corporations and mail out official "looking" compliance notices, and offer services for a considerable cost that you can get for pennies or for free elsewhere, if you know where to look. The $125 is a steep price for a set of boilerplate minutes. Why?
It is true that every corporation should have and keep annual meeting minutes on file because one of the requirements for corporations in California is to have at least an annual meeting and to keep records, including books (in a double entry bookkeeping system) and minutes of meetings. There can be a corporation of one, yet the same standard applies, and records must be kept. This is for the protection of the consumer, and in a manner of speaking is what separates (and legitimizes) corporations as opposed to loosely held even more loosely bound "unincorporated associations", which by the way lack important legal protections as well.
If a corporation is audited by the Department of Corporations and has had no meetings or kept no minutes, it is out of compliance. The status could be suspended by the Department, which would require submital of paperwork to correct the error. Personally, I do not know of any corporation that has been audited by the Department of Coporations, but if it were to happen, failure to have the annual meeting or keep minutes of it is probably the least of the problems the corporation has (because those failures indicate a lack of attention to compliance requirements in general).
This compliance notice might lure many uninformed people into sending in the $125 for the minutes. But don't feel bad if it has caused you to do so. I fell for a similar type of scenario when I got a notice in the mail about a year ago that the State was holding money for me. The notice came "in a similar type of official looking" notice and I assumed it was from the State. I sent money (I think it was about $15.00) and I got a letter simply referring me to the State website that lists people for whom the state is holding money (from forgotten bank accounts, etc.) After filling out the forms and proving identity, I received my unclaimed funds (about $25). The state website is free and contains instructions of how to claim unclaimed money. The state advertises the website occasionally. Access is free and is a service of the State. And then there is the time my 10 year old son welcomed me back from a business trip with a huge banner "WE WON TEN MILLION DOLLARS" (having gotten the information from a sweekstakes notice) ... well, that's another story!
So back to the minutes - how about a freebie: here is what minutes contain: date of meeting, whether a quorum of corporate members was present (and if a small group, or a check in system is used, you might include who was present including those not on the Board), who presided, what action items were raised or discussed, notation of reports given if any, and if motions were made, what the outcome was (passed or not passed, approved or not approved), and last of all - adjournment.
There you have it - but if you want to send money for the information, you can discount the cost of your "official notice"and send me $100 (ha ha).
If you need more simplistic information about how to conduct meetings, use parliamentary procedure, and what should appear in minutes, go to amazon.com or your local bookstore and purchase a plain English simplified book on Robert's Rules for around $10 to $15.
That will offer you a lot more bang for your buck.
Sincerely ... (fool me once and I've been fooled; fool me twice and I am a fool ... is that how it goes?)
Don't be fooled by these type of "compliance notices" (or the sweepstakes notices for that matter) - read things very carefully.
Posted by Beth Grimm at 9:07 PM