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October 27, 2006
Borrowing from Reserves - Not Contributing? What's the Difference?
Maybe this goes on in your association? It apparently happens alot, without too much worry.
Comment from reader: "Our Manager pays everything through the operating funds. We feel he must be borrowing from the reserves, but he says it is not borrowing - he just doesn't put the reserve money into the account because he needs the money for expenses. We've questioned the accountability of this, but again he sidesteps just says this is how it is done."
Is diverting reserve allocations from the reserves the same as borrowing from the reserves? It's understandable that some would distinguish the two simply because there are no funds removed from the accounts. However, the effect is the same. The action leaves the reserves funds short of what is budgeted, and that means short of the expectation of membes based on the annual budget projections.
And I would venture to say that this practice played a large part in the tightening up of the reserves law in California and lead to requirements to notify the members if the Board is considering borrowing from the reserves, before the decision is made.
Since the health of the reserves accounts is of utmost importance to the members, if action is taken by the Board that diverts funds or results in borrowing from the funds, the members should be made aware of this. As of this year, there is legislation that requires information be disclosed to owners on this kind of thing on an annual basis, including disclosure of loans when the payments are made from reserve allocations. Some of the disclosures are not effectively required until January 1, 2009. Still, the disclosure of events leading to a reserve shortage needs to be made in a more timely fashion if the diversion of reserve funds can be equated to borrowing or taking money out of the reserves for a purpose that is not related to budgeted reserve expenditures.
Posted by Beth Grimm at 9:10 PM
October 14, 2006
Who Has Right To Attend HOA Meetings?
I received this question recently and it is a fairly common one in that it deals with people being barred from HOA meetings:
"I'm a co-owner in a unit of our HOA. I have a power of attorney to represent our interests. The management company rep and the board claim I have no right to attend meetings. If I show up, they ajourn the general meeting to an executive session, which is held in secret at a boardmember's home. In these secret executive meetings, many decisions have been made that affect common use area access, parking, landscaping, etc., without the residents' knowledge, comments, quorum or vote."
There is a lot going on in this question. Owners of units or lots in common interest developments have a right to attend open Board meetings in developments subject to the Davis Stirling Common Interest Development Act, and do not need a power of attorney to do so. Even if an Association's documents had a regulation prohibiting more than one owner of a unit from attending meetings, I would doubt the enforceability of it. There may be extenuating circumstances of course. As always, it would be helpful to hear the other side of things. I can think of a few situations where an owner might be barred from meetings.
Some people consider themselves owners of property based on "community property" laws. Even so, some documents consider "record owners" to be members and someone who is not on title would not be treated as a member, even if in the eyes of the law they were a "co-owner". This might be the case if someone was buying a unit on contract and was not listed on title in the official County records or if someone received an interest in exchange for some kind of consideration.
There may be another explanation. Sometimes an Association will exclude persons claiming to be members (right or wrong) from meetings based on conduct. Abusive tendencies sometimes lead Boards to adjourn the meeting and reconvene behind locked doors to conduct the business at hand. This is a remedy I have suggested in some extreme cases; however, it is not something I would suggest as a matter of course to an association, without examining the facts and circumstances related to conduct, business underway, etc.
I do not know the circumstances behind the situation that lead to the stated questions, and am not by this blog inviting more information on the specific situation, but am saying that if a Board bans members of the Association from attending meetings that are not protected with a veil of confidentiality under Civil Code Sections 1363.05 and following (The Common Interest Development Open Meetings Act), without special circumstances being involved that might justify the decision, there is a problem.
Posted by Beth Grimm at 9:30 PM
October 12, 2006
Should HOAs Adopt Standards for Board Members?
Expect a lot of talk in the coming year about whether board members for HOAs should "qualify" to serve. Some Associations have adopted qualifications. Whether they enforce them or not is another question. In many associations, board member candidates are in short supply and getting people to serve is the base goal.
What do I mean by qualifications? Here are some: A Director must be a member of the Association. A Director must be "in good standing". (That usually means current in their assessment accounts and can include in compliance with the governing documents and rules of the association). A Director must take courses specifically designed for Directors of community associations. Directors must "walk the complex once each calendar quarter and provide to the membership and board a written report of the condition of the complex".
What qualifications would you suggest? As I said, this will be a topic of conversation in the coming year. Think about it. I would be interested in hearing suggestions. Of course, if qualifications are adopted, the flip side is that it decreases the "pool" of possible volunteers. And thought must be given to whether the stated qualifications are overburdensome.
A few questions about requiring board member education arise: (1) will the Association pay for it? (2) Are the classes readily availalble.
More on this to come later...
Posted by Beth Grimm at 10:57 PM
October 10, 2006
Using Association Counsel for Personal Advice - That's a No No
Board members and managers sometimes are tempted to seek individual advice from the Association's attorney - the attorney is good, right? They seem fair, right? They would like to fix everything that is wrong, right? So they are the perfect resource when a board member or the manager does not like the direction the board is going, right? Talking to counsel about personal issues with the Board members is acceptable and does not cost a dime personally, right?
Wrong! If the association's attorney is having conversations with one board member who has a personal beef with what is going on with the board, or a complaint about one or more board members, that is a sign, a red flag, for both parties, that may lead to an ethical breach, both on the part of the board member (a fiduciary) and the lawyer (a professional subject to ethical rules). The same exact truth applies if the association attorney is conversing with management about the way management would like things to go, when the Board is going a different direction. The manager should not be seeking legal advice from counsel as to how to protect himself or herself against poor board decisions or failure to act appropriately.
Here is how I think it should work: when the conversations start to turn toward one board member or the manager seeking legal advice as to how to protect "themself", rather than how to get things working as they should: one option for the attorney is suggest to the person who contacted them that they provide the board with the written complaints or concerns, and urge the Board to seek legal advice as to the options, ramifications, or potential problems. If the majority of the Board is not in favor of seeking help to iron out whatever problem is occurring, then the complainant (person seeking help) might want to consider backing off and make the decision as to whether to stay on the board (for the Board member) or continue to manage (as for the manager). Of course it makes sense to seek independent legal advice from an attorney outside the firm representing the Association.
When a board member or manager seeks individual advice from the Association attorney, it leaves the attorney in a dilemma. Should the attorney pump the person seeking help for information? Contact the Board and let it know there is a problem (sometimes considered unsolicited, unneeded advice)? Suggest to the person seeking the advice that they confront the Board? Suggest they get an attorne? Or let it go unless and until the Board seeks legal advice, and respond when/if it does? The answer depends on the circumstances of course.
It could certainly be a confliict of interest, and an ethical breach (in California, I believe, and I would hope in other states) if association counsel provides individual advice to a board member or manager who is trying to protect themselves from situations created by a board, dysfunctional or not. The board member or manager needs to consult with other counsel. That is NOT to condemn the actions of the association attorney to try and get to the root of any problem that needs to be resolved. The attorney has the responsibility to act in the best interests of the corporation, its client, and not any individual member of it, if they have provided services to the Association and are considered the attorney for the association by the Board.
If circumstances have changed and the attorney for the association is no longer the attorney for the association, that does not automatically mean they are free to represent others with a beef against the association. Informed consent and waiver of any conflict is necessary (yes, that is a legal mouthful) if the attorney has provided services in the past and has any knowledge that would put the association at a disadvantage in any other actions that might arise. Managers and board members who have a dispute with the Board or grave concerns about the actions of the Board should consult with INDEPENDENT LEGAL COUNSEL, and not try to get the Association's counsel to answer their questions about what is needed to protect themselves. Some attorneys forget this in their zest to protect managers or Board presidents rather than analyzing what is best for their clients.
Posted by Beth Grimm at 11:16 AM
October 9, 2006
Should HOAs Eliminate Quorum Requirements Because of the New Elections Law?
It's beginning to sound like a broken record to me. Free flowing advice is being provided via letters, speakers at seminars, and web message to HOAs to "eliminate the quorum requirements from their governing documents" so that lack of a quorum at an election does not become an unsolvable problem. It is true that the new HOA Elections law does not provide a solution when an HOA receives a ballot return of less than a quorum of ballots. It is true that the old elections law did not solve the problem either, but since there is much more heightened awareness of possible election "gaffs" nowadays, it is important to try and solve whatever problems are solvable at the outset.
That said (and with due respect to all professionals out there trying to help associations cope with the new elections laws), ...
"Eliminate the quorum requirements" is painting with too broad a brush. First of all, HOAs cannot eliminate voting requirements for measures that involve assessments, amendment of documents and transfer of common area. Second of all, many people confuse the "quorum" with the actual vote that is required to pass something and could cause other problems if they amend with that in mind and they do not know what they are doing (in fact, many will not even know they need owner approval to amend the documents AND they need to do the voting by the new double envelope secret ballot system to do it). And of course, since members have to approve an amendment to the bylaws that eliminates the quorum requirements altogether, a board proposal to eliminate quorum may receive considerable resistance since the change would essentially mean that "if 2 people only vote in favor, measure passed!" While they may be thinking: "It is not fair that 2 or 3 people could pass a special assessment" .... You may be thinking - like I often do - "if the Board makes a reasonable effort to solicit candidates and get people to vote, why not allow those members who are interested enough to actually vote to choose the board members?"
Besides that, if you review the California Corporations Code you would find that if there is no quorum requirement in an incorporated HOA bylaws, then the Code would supply the quorum to be 1/3 of the "voting power" (usually means the Lots or Units but could be based on square footage, etc.) This means that if an association with a 25% quorum successfully votes to eliminate the quorum requirements (to where there are none remaining), the quorum requirements will actually be higher as provided by the blank filled in by the Corporations Code. At least this is the way I read it. See for yourself, Section 7512 below, pulled from the California Government website at www.ca.gov (navigation=Government-29 California Codes, Corporations Code Section 7512).
That means, in case you are having a hard time following this, if you amend to eliminate the quorum requirement, you will have it filled in by the Code. If you amend to state that "no quorum is required" , it would not matter if only 2 or 3 or 10 people were involved, they essentially could make many decisions that would otherwise require sustantial member feedback on a measure. But if you amend to say: "For the election of directors only, the quorum is the number of ballots that are returned to the Inspectors of Election," you have solved the problem. In fact, it is that exact language that I provided to legislator who did the cleanup on the elections bill just so that there would be no confusion with existing laws and statutes. That language does not interfere with the other types of election subjects, the California Codes, or amendment of document requirements, and it does not leave associations with a higher quorum than before.
This language about quorum for board elections was proposed along with my specific request that all ballots that were returned should be counted toward the quorum requirements. That concept was adopted (thankfully).
The proposed cleanup language that would solve the quorum problem without imposing any changes relating to the membership requirements for special assessments and the like was not picked up. It should have been.
Before SB 1560, we were discussing quorum/proxy issues. Today we are still discussing and trying to solve quorum/proxy issues, just from a different angle.
Don't get caught in a trap without a full understanding of what you would propose as an amendment to the bylaws. Think it through.
THE STATUTE: Corporations Code Section says:
"7512. (a) One-third of the voting power, represented in person or by proxy, shall constitute a quorum at a meeting of members, but, subject to subdivisions (b) and (c), a bylaw may set a different quorum. Any bylaw amendment to increase the quorum may be adopted only by approval of the members (Section 5034). If a quorum is present, the affirmative vote of the majority of the voting power represented at the meeting, entitled to vote, and voting on any matter shall be the act of the members unless the vote of a greater number or voting by classes is required by this part or the articles or bylaws.
(b) Where a bylaw authorizes a corporation to conduct a meeting with a quorum of less than one-third of the voting power, then the only matters that may be voted upon at any regular meeting actually attended, in person or by proxy, by less than one-third of the voting power are matters notice of the general nature of which was given,
pursuant to the first sentence of subdivision (a) of Section 7511.
(c) Subject to subdivision (b), the members present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment notwithstanding the withdrawal of enough members to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the
members required to constitute a quorum or, if required by this division, or by the articles or the bylaws, the vote of the greater number or voting by classes.
(d) In the absence of a quorum, any meeting of members may be adjourned from time to time by the vote of a majority of the votes represented either in person or by proxy, but no other business may
be transacted, except as provided in subdivision (c)."
Hope this helps!
Posted by Beth Grimm at 2:19 PM
October 5, 2006
RV Parking on the Street in an HOA - What Can You Do?
Here is a question published awhile back in "Common Ground", the national publication of Community Associations Institute (CAI) ... The question sent to me, and my answer follows:
Question: “Our CC&Rs restrict RVs, boats, and trailers from parking on public streets within our CC&R area, but a city ordinance has a 72 hour parking limitation on RVs, etc. Can we enforce where the CC&R is more restrictive than the ordinance and the violation is on public not private property?” – Westlake Village, California.
Answer: Maybe - Maybe not. Unfortunately, California attorneys do not uniformly agree on the answer to this question so it would be important for you to seek advice from the attorney of your choice. Some attorneys believe that Associations may control parking by residents of the development on the public streets and others believe that they may not. These opinions stem from a California case called Citizens Against Gated Enclaves, et al., v. Whitley Heights Civic Association, (March 23, 1994), and cases in other jurisdictions like the Missouri Court of Appeals, Eastern District, Division Two, MARYLAND ESTATES HOMEOWNERS' ASSOCIATION v. Karen PUCKETT and Chris SCHALLERT, No. 70105, Dec. 17, 1996.
In the Maryland Estates case, the court found that a homeowners association could indeed restrict parking on the public streets as to its members (but not others). The arguments in this case support a Board's ability to enforce parking on public streets that is prohibited by the deed regulations. The Whitley Heights case is a about a community that wanted to put up a security gate, but ran into problems when the court found that the public should have rights of ingress and egress and use of public streets. The Whitley case did not specifically deal with restrictions on members of the Association and that may be the key to distinguishing it in the case of an RV or commercial vehicle parked on the street. These violations go beyond normal use of the public streets.
Neither of these cases deal with potential nuisance and possible safety issues like the parking of an oversized vehicle or use of portable basket ball standards on public streets. I think this is still an unsettled question in California, i.e., whether the Association can enforce parking restrictions that prohibit the members from parking of RVs within the development.
However, even without an answer to this question, many municipalities have ordinances with size restrictions and although the writer in this case said that the City allows parking for 72 hours at a time, I have seen restrictions on public streets of vehicles more than 20 feet long,and the like. It never hurts to check the local ordinances and if they are being violated, urge the City to enforce.
Posted by Beth Grimm at 9:17 PM
THE ELECTIONS CODE - Does It Apply To HOA Elections?
I have been receiving a lot of calls and emails asking if the Elections Code applies to HOA elections. It does not. The legislators who wrote this law may intend that it serve as a guide, and have made similar statements to that effect, causing undue confusion. However, think about it ... if HOAs do not allow proxies (as some feel is appropriate since the new elections law says they do not have to provide them) and they do not allow members to "validate" their ballots and allow someone else to fill them out and turn them in, it will disenfranchise every California HOA member who cannot attend an important meeting at which ballots will be accepted and the final count be taken. Unlike public elections, the most excitement with regard to any election tends to happen at a meeting where candidates will be nominated from the floor or important presentations will be made about proposed reconstruction or special assessments. The new elections law requires Boards to hold the meetings if the documents require it, but the buzz about proxies and "electioneering" are leading to a very difficult situation for HOAs and especially for homeowners in the HOAs who want to have a voice.
Don't even get me started on recall. The new elections law, in my view, unduly complicates that process and has the likely possibility of throwing every recall election in this State into a court challenge. Allow Proxy voting or not? Meeting or Not? More questions than answers.
There needs to be discussion among professionals on this subject as to how to keep things fair, without unduly confusing the membership, given the roller coaster ride caused by the new "Elections Reform" forced on California HOAs.
Stay tuned for more ............
Posted by Beth Grimm at 10:27 AM