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August 6, 2007
A Manager Violates the Davis Stirling Act - What Can Be Done?
This is a question that came in recently. If an HOA Manager fails to disclose to the Board/Association that they are not certified, what can be done? Can they be reported to the Department of Real Estate?
This is a really good question. First of all, the Department of Real Estate does not regulate CID Managers. The Industry more or less is "self-regulating" and there is no state oversight group. Whatever remedies there are would come from California law, and if the manager holds a designation through CACM (California Association of Community Association Managers) or CAI (Community Associations Institute), there might be a remedy there. However, if the manager holds one of these groups designations, there is a good likelihood that they would qualify as a Certified Common Interest Development Manager as the designations were grandfathered up to the year the law was changed to provide the requirements for certification and since, the requirements for achieving the industry group designations are probably going to coincide with the requirements for Certified CID Managers.
Now, what if a person does not disclose that they are not certified?
The requirement comes from here.
California Civil Code Section 1363.1 says (in pertinent part):
1363.1. (a) A prospective managing agent of a common interest development shall provide a written statement to the board of directors of the association of a common interest development as soon as practicable, but in no event more than 90 days, before entering into a management agreement which shall contain all of the following information concerning the managing agent:
(1) The names and business addresses of the owners or general partners of the managing agent. If the managing agent is a corporation, the written statement shall include the names and business addresses of the directors and officers and shareholders holding greater than 10 percent of the shares of the corporation.
(2) Whether or not any relevant licenses such as architectural design, construction, engineering, real estate, or accounting have been issued by this state and are currently held by the persons specified in paragraph (1). If a license is currently held by any of those persons, the statement shall contain the following information:
(A) What license is held.
(B) The dates the license is valid.
(C) The name of the licensee appearing on that license.
(3) Whether or not any relevant professional certifications or
designations such as architectural design, construction, engineering, real property management, or accounting are currently held by any of the persons specified in paragraph (1), including, but not limited to, a professional common interest development manager. If any certification or designation is held, the statement shall include the following information:
(A) What the certification or designation is and what entity issued it.
(B) The dates the certification or designation is valid.
(C) The names in which the certification or designation is held.
(b) As used in this section, a "managing agent" is a person or entity who, for compensation or in expectation of compensation, exercises control over the assets of a common interest development. A "managing agent" does not include either of the following:
(1) A full-time employee of the association.
(2) Any regulated financial institution operating within the
normal course of its regulated business practice.
Civil Code Section 1363.2 which prohibits commingling an association's funds with other funds has a remedy that allows the prevailing party to recocvcer attorney fees for an action filed under it; but it us limited to 1363.2. If a person holds themselves out to be a Certified CID Manager without being qualified, the ultimate worst possible remedy is "disgorgement" of profits. But, it does not appear to me that failure to make a disclosure at all would rise to this level of wrongdoing.
Here are some possible remedies if a board or owner discovers a manager failed to make the required disclosure that they are not a Certified CID Manager:
The Board could probably terminate the contract without having to follow steps in it for termination as this failure to disclose might be portrayed as misrepresentation or even fraud.
The Board or an owner might be able to seek damages (a money judgment) even without having to prove any losses simply because the manager violated the statute (this is called "negligence per se"). However, it is likely that in order to prevail, the party that wants to seek a remedy might have to show the error was on purpose to collect any serious monetary judgment, or show losses.
I do not know of any cases that provide more definitive information about what the remedy is for non-disclosure - that has been the question of the century with regard to the Davis Stirling Act. Because of a shortage of any identified remedies for violations of the Davis Stirling Act, legislators are writing more and more remedies into the law itself, and many of the current remedies involve the right to bring an action in small claims court for the smaller and limited jurisdiction cases.
Posted by Beth Grimm at August 6, 2007 9:57 PM