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September 28, 2007
NOISE ISSUES, WHERE WILL LIABILITY LIE?
Each time I write about noise issues, I get several emails. So I will write more on the subject.
This is quite a difficult one. A very recent question involves a 4 or 5 year old child that is autistic. The upstairs child is up all night, and so the parents are up all night. The downstairs owner finds the noise intolerable and wants to know what their rights are.
This is truly a difficult issue. I guess before assessing any potential liabilty I would ask some questions. What are the parties doing to minimize the noise? Have the upstairs neighbors been notified? They are not always aware of the problem. If so, have they done anything to minimize the nightime disturbances? I do not even know all the possibilities, whether there are changes in habits that might help, medications, change of bedrooms, carpetting or noise reduction methods that could be implemented. As for the complaining party, my question would be" "What have you done to protect yourself in this difficult situation?" Again, I do not know what the possibilities might be but I would explore white noise, earplugs, change of bedrooms, talking to the neighbors, trying to find out whether nightime noise can somehow be converted to daytime noise which, I assume, would not be as disturbing (disturbing, yes, but not as disturbing).
I know of a situation where a family with an autistic child was the brunt of neighbor complaints. This family dealt with complaints about daytime noise(nightime noise was not an issue in this situation). They encouraged their children (one who had autism and the other who did not) to play upstairs in their bedrooms instead of downstairs over the neighboring unit, purchased a small trampoline for the upstairs carpeted bedroom so their son could jump without disturbing the neighbors, attempted as much as possible to take the children out during the day and on weekends, purchased rugs and pads from the floors that were over another unit, and still, this family had to live with constant complaints by the downstairs neighbors to the HOA.
I have in past years dealt with exactly the sort of situation complained of in this blog. Strong-arming a family dealing with a noise issue involving a disability or medical condition that exacerbates noise is not the answer. Autism, ADHD, and tourets syndrome are just such conditions, and it would not surprise me if any family being pursued or disciplined for these issues would fight back with a discrimination claim.
Still, that does not leave the family with the child problem off the hook. Both parties have to try and mitigate the problems by making reasonable concessions. And, if that does not resolve the problem, the parties might try mediation, or looking at other options if a lawsuit is to be considered. I personally do not think a lawsuit is the right approach here, but if it were to happen, the concessions made by either or both parties would probably be considered. And as for the HOA, the developer, the flooring installer, or any other party that might be named as a defendant here are some pertinent questions to ask:
Is this a pre-existing condition or did something change, i.e., flooring, neighbors, change in family circumstances, residents (number or age), and if there was a change that is now creating a problem, will it be remedied any time soon?
Are you just the problem, or also part of the solution?
Did you do anything to cause or exacerbate the noise issue(s)?
Did you do anything to mitigate or minimize the problems or condition leading to the problems?
Did any of the parties violate the governing documents in their actions?
Was there any requirement or duty to make disclosures?
If so, were those disclosures made to the right party?
Are there any viable solutions that do not involve expecting the impossible, such as moving when economics or life logistics do not allow it?
Liability depends on facts and circumstances. Did any party have a duty to the other party? Yes, that of a reasonable, prudent person.
Did any party breach that duty to the other person? That is determined by the facts.
If so, did that breach cause the damages or pain and suffering, nuisance, etc.?
If any of the parties can prove the answer to be "yes" to these questions, they may have a case.
But again, way before getting there, think about your actions, starting from Day 1 of the development: the planning stages, configuration of buildings and units, the flooring choices that make sense and do not, and the fallout from exercising options.
And I will say just a few more things.
Conversions from apartments to condos are a very common source of noise issues.
Boards that try to opt out of these disputes or shift the responsibility for resolution of them by relinquishing control in flooring choices are not then immune from exposure to liability.
Allowing hard surface flooring in stacked units often leads to these to noise issues.
I am not by writing this inviting answers to a specific situation and potential legal dispute. I am offering this blog as food for thought. There are not a lot of cases on noise issues, and there are not clean answers to all of the problems that exist, but what there is - is the responsibility to act responsibly under the circumstances, and think before you sue. I do recall reading about a case in an Alameda superior court several years ago where a jury awarded about $700,000 in damages to an owner who found theselves in a very untenable situation. I believe it went something like this: the upstairs owner installed hardwood flooring. The association board or architectural committee either approved it, or the hard surface floors were not allowed per the documents and the board ignored them in spite of the owner's complaints (I think it was the latter). The upstairs owner exacerbated matters by purchasing a piano and playing at all hours of the day and night, and knew this bothered the downstairs neighbors.
As I recall, the upstairs owner was found responsible for about 2/3 of the damages and the association was held responsible for about 1/3 of the award.
I cannot find a case cite for this case. It was not a binding appellate decision that I can recall. But it makes sense. The parties that enabled the problem and exacerbated it were held liable for serious damages.
I believe it could happen to you, if you are more a part of the problem than the solution.
Posted by Beth Grimm at 11:03 PM
September 27, 2007
What's The Deal About Rules and Rules Violations?
There are always questions coming in about rules and rules violations. Here are a few questions and answers about rules (in California).
Question: "I have a question regarding violation notices. If the board (via the management company) sends a homeowner a violation notice, should they include a copy of the rule that was adopted by the board?"
Answer: It is a good idea to enclose a copy of or state the rule that the Board believes was violated. The California statute that deals with "due process requirements" (Civil Code Section 1363(h) says:
"(h) When the board of directors is going to meet to consider or impose discipline upon a member, the board shall notify the member in writing, by either personal delivery or first-class mail, at least 10 days prior to the meeting. The notification shall contain, at a minimum, the date, time, and place of the meeting, the nature of the alleged violation for which a member may be disciplined, and a statement that the member has a right to attend and may address the board at the meeting. The board of directors of the association shall meet in executive session if requested by the member being disciplined. If the board imposes discipline on a member, the board shall provide the member a written notification of the disciplinary action, by either personal delivery or first-class mail, within 15 days following the action. A disciplinary action shall not be effective unless the board fulfills the requirements of this subdivision."
Question: "Also, should the board send homeowners a copy of all rules and regulations annually?"
Answer: California law has a litany of requirements related to the approval of rules. The statutes are found at Civil Code Section 1357.100 and following. Basically, for most rules or rule changes the Board must circulate proposed rules to the members at least 30 days before the Board is intending to approve the rules, and then again, after they are approved. There is no requirement that the rules be circulated thereafter at all, until changed, but it makes sense to send them out annually. Think about it, the more they are put before the owners, the harder they are to ignore.
Question: "Can you tell me what home owners need to do to start the process of changing a rule within an Association's guidelines? Can a petition be started and are there guidelines that need to be followed for that procedure?"
Answer: Any owner can suggest a rule. Any board member can suggest a rule. If the Board does not move forward with a rule that is requested, then the recourse for the owner might be: seek a list of the member names and addresses and send a survey to owners to see what they think about the proposed rule. Garner interest to the extent possible with supporting documentation or reasoning. If you can get the board or other owners interested in a particular rule, you are more likely to get the process for it moving forward. If you get no support, or if you get more opposition than you expected, maybe you want to re-evaluate the importance of the proposed rule.
An owner could seek signatures of other owners on a petition request to the Board to consider a rule. Under the Corporations Code for an incorporated HOA, an owner can petition the Board for a meeting and request an that the board call a meeting and take some kind of action (so long as the proposed action would be legal and valid - and it is possible that the proposal to adopt a particular rule could be legal and valid), and upon signatures of 5% of the owners in the association, the Board is supposed to call the meeting. However, with the new election rules in California, if the action requested requires homeowner approval (rules usually do not, but it the documents say they do, then they probably do), then the vote would be accomplished via a mail ballot circulated at least 30 days before the meeting, which really screws with the timing of the Corporations Code that allows for the petition process.
And, if the Board proposes a rule or rule to the members, and any member does not like the rule, there are procedures in the statutes (Civil Code Section 1357.100 and following), that allow the owner or owners to press the Board to put the termination of any rule that is approved by the Board to a vote of the members.
Posted by Beth Grimm at 8:57 PM
September 19, 2007
What Board Conduct is Acceptable?
I receive a lot of emails telling me of board conduct that is outrageous. I, of course, do not always hear the other side when these issues come to me as complaints so do not consider this advice on a given situation, but I can respond as to what I do understand, have seen, have experienced first hand, and have heard about, as inappropriate behaviors.
Board members are fiduciaries and the mystery of that word can be resolved. They are responsible for managing and administering the assets of others; they have some control over that, and they are therefore held to a higher standard than other owners. They have responsibilities, and they can be sued.
So long as they are acting within their capacity as board members and in good faith - and there are statutorily defined components to that which are not going to be reiterated here, because this blog is for simple truths - a board member should be fine. The wrinkle comes when a board member is in denial, in a state of unrealistic entitlement, is inebriated, sick, or is just basically full of himself or herself. In my own experience, the following behaviors are things that have been brought to my attention as conduct of board members, and I can say with conviction, are things that they should absolutely not do. Whether anyone reading this "has a case" is not to be decided here.
Board members do not have license to:
Spill confidential information learned in valid executive session meetings - to anyone outside of the circle of confidentiality, EVEN IF THEY DO NOT LIKE THE INFORMATION OR THE WAY THE BOARD IS GOING WITH IT. Enron aside, and "whistle-blowers" law aside, I find in actual real life HOA experience that most directors that do it, and although they would like to consider themselves "whistleblowers", they are really just trying to trip up the other board members by using the information improperly.
Confront homeowners in anything less than a business-like or professional manner. Some board members feel the position gives them rights that a regular person does not have. Certainly, some power is conferred, but not the power to "get in someone's face". If Board members shout, pound tables, threaten members including other board members with anything other than what the governing documents and law allows, harass them (within the simplified definition which basically means engaging in continued actions intended to offend or threaten them), promise to make their lives within the association miserable, pick on them or single them out (which rises to inconsistency of enforcement of the documents), tell them they are "being watched", etc., they are acting improperly.
Get physical. A board member is acting in bad faith AND outside their capacity of a board member if he or she gets physical with anyone else, and claims protection of the board member status in his or her defense, or is "addressing" board member business.
Visit homes or confront others in the dark of night or engage in other conduct that is likely to unreasonably and intentionally escalate a situation. Any board member that confronts others to do "association business" after dark, in their homes, in an inebriated state (that means either party), in any situation with the intent to embarass the person, in a demeaning manner, or that condemns or confronts an owner about a situation or purported violation without catching them in the act or having proof or evidence that would stand up in court that there is a violation occurring (in other words, treat them as guilty, and punish them, without any due process consideration) is acting improperly.
Paying themselves from Association funds without presentation and receipt of proof of item to be reimbursed. Most documents for HOAs prohibit paying compensation to board members, and if compensation is paid, (without a separate contract for specific services, approved by the Board and disclosed to members), not only is the responsible board member(s) violating the governing documents in those cases, but the recipient of the "token pay" or any other compensation is losing important protections that exist in the law for unpaid volunteers. But the worst case scenario are those board members that "help themselves" without any oversight, even in cases where payment would otherwise be justified. Of course, if they are the only "volunteer" willing to serve, I could listen to arguments to the contrary on the necessary limits of oversight.
An association board that allows any board members to engage in the above types of conduct AND the board member who does it are both liable to find themselves at the nasty end of a lawsuit, and furthermore, could conceivably find themselves without insurance coverage to protect them. Gross, intentional and malicious conduct, discrimination and harrassment charges are often excluded in coverages.
So, if the conduct is occurring, stop it immediately. Get help if you do not know how to do that. I meet with many boards and have many conversations about this. I know that there are actions that can be put into place to address these behaviors. There are some other blogs on components of this subject, and I will try to do a full article on this specific subject (oh, there are so many things that need to be addressed) sometime soon. And boards, lest you think that I am picking on board members, you can expect a blog soon on what can be considered "legally actionable conduct" exhibited by owners. Many times, these blogs are triggered by an experience I have, or an email that I receive with a valid question, and since I have helped owners and board members and associations and managers in many varied situations and various capacities (advocate, mediator, negotiator, counselor, etc.), I try very hard to keep a good perspective and address both sides of an issue.
Posted by Beth Grimm at 10:37 AM
September 18, 2007
HOA Loans - Are They A Good Thing To Fund Reconstruction or Fund Reserves?
You serve on the board. You find that your association has some pretty serious problems, shortages in the reserves, rampant termite issues, siding failure, major dry rot under the roof, and on and on and on ... . What do you do?
Get busy as a board finding the right experts to help assess the problem, find a solution, and determine what funding methods should be considered. This blog is about loans.
Some Boards and some owners take a rather negative view toward loans. There are loan fees, qualifying processes, paperwork, etc. Some assume that the special assessment process to fund the shortfall is going to be the way to go. There are some valid reasons supporting the truth that if owners can pay the special assessment up front, or borrow the money on an equity line-of-credit or with an equity loan, there are benefits to that, for the owner. But what about the owners who cannot come up with the money, or cannot borrow money? Who is going to help them?
Perhaps you do not know this, but the percentage of owner votes needed to approve a loan is often higher (often 2/3 approval or even 75% approval) than that needed for approval of a special assessment (a majority of a quorum - a quorum for these purposes being more than half of the owners). Thus, it is harder to get approval of a loan than to get approval of the special assessment. This can complicate things for Boards that are trying to combine the two.
So back to the problem. If the Board and owners who can afford to pay any necessary special assessment on their own steam have their say, the loan option is often criticized.
But think about this. If an association needs serious funding for a project or beefing up the reserves, and any owner is unable to fund the special assessment needed to do so, that person is at risk of
(1) Declaring bankruptcy to save their home OR
(2) Walking away from the unit, letting it go into foreclosure
Neither of these options are desirable for any owner, but forcing owners into an untenable situation by forcing collection of a special assessment "up front" can force an owner into having to make one of these two difficult decisions.
And what happens then? If an owner declares bankruptcy, it is extremely likely that the association will not be paid off for years, if at all. If an owner lets their unit go into foreclosure, the association may well not get payment for the outstanding assessment.
So where does this leave the other owners? Someone has to make up the shortfall. Guess who?
The important thing in dealing with any difficult association funding issue is to consider all options, and think about how best to serve everyone in the development - because if those who can afford the assessment or can find funding themselves do not support the association loan process for those who cannot, they (those who can get the money together) may end up having to pay for the others who could have survived the long term payments but cannot survive the "up front" payment requirement.
Posted by Beth Grimm at 9:45 PM
September 17, 2007
SHOULD DEVELOPERS PROFIT FROM YOUR WOES? HARD SURFACE FLOORING AND NOISE ISSUES.
The installation of hard surface flooring in stacked units in condominiums OR townhouses very often creates serious problems. A very common scenario is that the upstairs people have kids, dogs, door slamming residents, or high heeled shoes involved; while the downstairs people have a love for quiet and solitude. The proverbial "sh_t" hits the fan at some point, and the complaints start. The upstairs people try to keep the kids or dogs down and the downstairs people take to pounding on the ceiling everytime they hear a noise they do not like.
So who is to blame? Who should "win the fight"? Who's right? Who's wrong?
One thing is for sure ... these are very difficult issues to resolve. In some cases, the only satisfactory result is going to be that one or the other, or both, parties need to move. There are intermediate remedies, like adding carpeting, rugs, padding and the like to traffic areas, trying earplugs or ocean waves as a distraction, or, perhaps one can try to "rise above it." However, unforetunately, it is likely both parties end up completely stressed and uncomfortable in their homes, and hating their neighbors. But with the economy the way it is, the sluggish market, and lending issues that are beginning to arise in an attempt to counter the subprime lending fiascos of the past few years, its just not that easy to move.
The sad thing about some of these situations are that the homes are in brand new developments. The developers collect extra profits to upgrade to laminate or wood floors. The public likes these kinds of floors and the belief is that they add value to the units. However, if the floors lead to noise complaints, the opposite can occur - a unit or the entire complex may lose value if there are rampant noise complaints.
What about developers that claim, when asked, that they use extra soundproofing materials to prevent or minimize noise transmission between units from the flooring, and it turns out they either mislead owners, or the "extra soundproofing" is worthless. Many owners feel duped by these representations.
Here's a thought: how about asking developers that build buildings with poor sound transmission, or that collect extra money for the upgrades to laminate or wood floors, to contribute something to resolve the problems? How about contributing those upgrade profits to be used for items or services that may help resolve the disputes that arise over noise transmission? That money could be well spent on carpeting, rugs and padding for the upper units, white noise machines for the lower units, or mediations to attempt resolution between the disputants.
I think that might be fair. What do you think? My next email on this subject will deal with Boards that take actions that allow upper units to upgrade to hard surface flooring without really sufficient padding, and then leave it up to the owners to "duke it out" and claim its a neighbor-to-neighbor issue. And expect a blog on owners who add hard surface flooring in spite of the prohibitions against it. And frankly, I do not buy the commonly proferred argument that laminate flooring is not hard surface flooring (when documents prohibit it) or that it does not increase sound transmission. It is not a reasonable substitute or "like-kind" product for carpeting and padding. When salespeople have to make disclosures about the increase in noise and "echo" capacity with the laminate flooring (which was the case the last two times I purchased it - in a single family, non CID home), you can believe its true.
Feel free to send me an email. Not everyone agrees with me. I recognize that.
Posted by Beth Grimm at 10:35 PM
September 13, 2007
Managers - Boards - Get Your Act Together! Escrow Demands Demand Attention.
Escrow document packages .... the bane of managers, boards, realtors and last but certainly not least, buyers AND sellers .... are the subject of legislation in California. The realtors are looking for a new process for the transfer of governing documents to purchasers. SB 127 was introduced this year by Senator Keuhl in January. It has been amended several times. The latest version, amended August 27, proposes that selling owners must get the document packages (essentially the governing documents and budget, reserves documents and annual financial report, among other things) to a purchaser within "not less than 20 calendar days after the execution of the purchase agreement to purchase title to the separate interest or execution of a real property sales contract or the opening of escrow, whichever is later." The bill would allow the parties to defer the dates by written agreement.
Why is a bill like this introduced? There are at least two very good reasons. Because purchasers need to see the documents sooner so that they can review them and contingencies can be released in a more timely fashion. Because sellers need to start the process sooner in the transaction than a few days before escrow is supposed to close to get the documents together (since HOAs have 10 days from the date of a written request by seller to provide the documents on behalf of the seller).
In a perfect world, the seller would make the request of the HOA to provide the documents early on in a transaction. And the 10 days the board or manager has to respond would be plenty. But what commonly happens in real life? The seller leaves it up to his or her realtor. The realtor waits until the transaction is about to close to scramble for the documents. The board or manager either has a difficult time getting the documents together (in a self-managed association) or has a busy schedule that does not allow immediate turnaround (in the case of an overworked manager). And even if all of the requests and responses are made in a timely way, the document packages are often incomplete and lacking in important components. Many HOAs and managers have posted documents on a document repository website but have not posted all of the documents that are required, or have not updated the documents available on the site. Many boards and managers refer buyers, sellers and realtors to a website for the HOA insurance information and problems arise there as well. Some lenders have trouble getting the information from the website and some will not accept certifications purchased from the site by buyers or sellers.
There are oh-so-many issues that come up, and that is the impetus for this legislation - to push everyone into moving more quickly with regard to getting the document packages together.
A real estate transaction can fall apart for failure on the part of one or more of the parties to do their due diligence in making requests and responding to requests. Boards, managers, and readers: if these obligations are not taken very seriously, it can lead to lawsuits for negligence and breach of duty and/or statutory penalties. Don't get these timelines in this statute confused. This bill does not extend or shorten the time that the HOA needs to respond but it does force sellers and realtors that have been waiting until the last minute to request documents from the HOA to make the requests earlier in the transaction. And while this may leave more time for correcting errors that occur when document packages are incomplete or faulty, it does not eliminate the liability or penalties for failure to produce a full package on time.
The bill is not law yet, but it could be, if not this year, sometime in the future. As the problems continue, so does the determination of the California Association of Realtors to force some kind of resolutions. To see this bill, and compare it with current law, go to www.ca.gov, navigate to legislation and bills, and pull SB 127, and then navigate to California laws and the constitution, and pull Civil Code Section 1368.
And get your act together! At the very least, keep the documents that need to be distributed together in one place and make them easy to get to for purposes of making copies, post them on a website like condocerts.com, or keep electronic copies available for those who can accept electronic documents. And do your best to respond quickly to demands. The sellers and buyers of the world are counting on you!
Posted by Beth Grimm at 10:31 AM
In the Event of An EQ -Are You Willing To Walk Away From Your Home? Lose Your Investment?
I will say it again: In the Event of An EQ -Are You Willing To Walk Away From Your Home - Lose Your Investment? How about this: Are you willing to force others out of their homes? If you are on the board, do you want to set your association up for failure in the event of a big earthquake? Do you want to let those with little invested in their homes dictate the level of protection of property for everyone in the development? Would you adopt the “Chicken Little " philosophy (“the sky is falling in so why bother planting the seeds”)?
Think about it. Certainly, if there is a devastating earthquake and your association is downed, that would be a very bad thing, but that does not mean the world is coming to an end. What is left are owners that need a solution. Certainly, there would be serious repercussions. The question is: is there going to be a chance that your members will be able to support rebuilding? And: What are you going to do to try and make sure it is within the realm of possibility that your association can rebuild?
If you are not willing to look at the possibilities, you can always throw your hands up and say - “if there is a big earthquake we are all cooked! So why try?” This is the “Chicken Little” philosophy.
I am in favor of the former, which is, looking at all options, and presenting all options to the members of the Association. I believe that Boards should look past the rising premiums and the lowered coverage aspects - painful as it might be - get above the anger with the insurance companies for doing this, and the disdain for the messengers (agents and brokers) who are scrambling to find you coverage, and get on with a plan to succeed if there is a big earthquake and if it hits your community hard.
Looking forward, and backward for that matter, if there is/was an EQ centered in your community, and it devastates your association, and others within a reasonably small radius, the Chicken Little "world is falling in" theorizing will/will have buried you. There will be heck to pay, lawsuits and pointing fingers all over the place. Few will think back that the $500, $1000 or $2000 that each owner would have had to pay for a year of some very basic protection was too heavy a price to pay.
And think about this too: even if the governing documents do not require the purchase of earthquake insurance, they do require that the board take measures to protect and preserve the property values. What can be more graphic a misstep than allowing the EQ to lapse, suffering EQ damage, and finding the property values are in the dumps?
This is why Boards need to take great pains to make sure that owners understand the ramifications of letting all EQ insurance go. There are various layers of coverage that can be considered to save money, and as layers are added, the price goes down. Individual owners can get protection through the CEA for up to $50,000 in loss assessment coverage for any special assessment they might have to pay in the event of an EQ event. If you as a Board tell owners they can get the coverage, and you take it a step further and calculate the amount of protection owners could get by multiplying the number of owners in your association by $50,000, you can realistically look at a reasonable deductible that may be higher than anything you have considered acceptable in the past. If 100 owners got the CEA coverage in your association, that is $5,000,000 worth of coverage (by my math) and encouraging this practice could allow raising the deductible, which could save some dollars.
It's a tough decision, purchasing earthquake insurance, or any insurance for that matter, as it seems like money gone into the wind, if there is no "event". But if we buck up and pay now, we may not have to pay 100 times over later on. Betting against yourself may seem a waste, but to me, the fact that such insurance still can be bought is a blessing in disguise. Some of the wind and flood damaged areas of the country no longer offer any of this kind of "sleep-at-night" protection at all.
Beth A. Grimm is an attorney who serves homeowner associations and homeowners alike. She is a frequent contributor to the Echo Journal and other similar publications in the State of California and on a national level. She is provides several publications written in plain English to help people who information about California law as it relates to homeowner associations. She posts a wealth of information on her web site at www.californiacondoguru.com.
Posted by Beth Grimm at 9:59 AM
September 12, 2007
Earthquake Insurance - The Owner's Perspective
I have written extensively pointing out to Boards and Management that dropping earthquake insurance must not be done lightly, even though premiums are sky high and coverage is decreasing. While I find that HOAs are commonly split fairly evenly on the issue, those with considerable equity [understandably] on the side of keeping it, and those that have little equity on the side of letting it go - foregoing the expense, I do not believe that there would be such an even split if the "have nots" and the "haves" fully understood the options in layered coverage, and the ramifications of "going bare", especially in earthquake fault-prone areas.
I own a condo, near a fault, on fill, and my association is considering dropping the earthquake insurance. I am going to encourage FULL DISCLOSURE to the members if/when the option is put to the members for a survey or vote. And personally, I am going to encourage keeping it. I am on the side of the "haves" having owned the condo for about 8 years. It is hard for me to understand that owners who have hundreds of thousands of dollars in equity in property in California can turn down the opportunity for some protection for themselves and fellow owners that could mean the difference between a $10,000 to $50,000 special assessment (for serious repair, and depending on the cost to rebuild) to $150 ,000 to $500,000 (more than 10 Xs the cost) to rebuild. These figures may not be exactly tied to your property, but I believe that they accurately represent the difference between EQ coverage - even if not full coverage - to no EQ coverage. Owners even with minimal equity have more incentive to stay on if the ability to recover involves a reasonable monthly payment to repay a small business administration loan as opposed to a double mortgage.
What does FULL DISCLOSURE involve?
I will use the outline of a similar paper that was presented to me by a reader for my paper I plan to submit to my Board, and will prepare the format for use by readers, and post it on my website within the next few weeks. I will add some twists and also and give the reader due credit for the format (if he wants it). It was incredibly well written, and answered several important questions. I plan to write a full article on behalf of the owners that are concerned and want to keep the insurance, within which I will put my slant but the format informational paper itself need not be indicative of any bias, just the facts ... [M'am].
Why do all this? Because I get calls and emails on almost a daily basis from owners that are frustrated and seriously concerned that the Board is talking about or has already dropped earthquake coverage, based solely on the cost/coverage aspect. And I cannot attend all of the meetings I get asked to attend.
I also think it fair to say that having the Association insurance agent or broker attend a meeting to explain the options and encourage keeping the insurance is often met with challenges and (not so friendly) comments that the presentation is "self-serving." It may seem so, but the agents and brokers are the ones with the answers to the questions about how the insurance works, what is covered, what is not, what the cost is, and the owners need them there. Those are not questions I would want to answer.
In case you cannot wait for me to get around to writing this article, here is the information that the Board should be presenting to Owners when they are asked to answer a survey for EQ insurance or are being asked to approve a special assessment:
What is this poll/informational paper all about?
This section is for explaining why the HOA is addressing the members on the subject and can be used to give owners general background on past coverage, and what the documents require (or do not require).
What is the Association’s earthquake insurance costing us?
This section should be used to describe the costs for the past year or years, and to present the bids that have been received, or costs increases that have been presented by the Association's insurance vendors.
Who is insuring us?
This section is to describe the current carrier, the rating, and to provide any comparison information you may have on other carriers, for "better or for worse". It is the opportunity to provide information that your broker or agent has provided to you about the availability, or nonavailability of other carriers.
Does this policy cover my own unit and belongings too?
This is the opportunity to explain what EQ insurance covers and what it does not (and even throw in a plug for property/fire coverage and the need to owners to understand their personal belongings, fixtures, etc. are not covered by the master insurance policies. It's the opportunity to explain loss assessment coverage (and the difference between the regular loss assessment and the EQ loss assessment coverage).
What can you do to get the individual protection?
This is where you can explain the option for Owners to add to their coverage cushion by purchasing a CEA policy. This is the key to helping boards and homeowners understand that even without full protection under the master policy, a homewner can close the gaps by purchasing up to $50,000 in loss assessment coverage, and extra building coverage, relocation insurance, personal belongings insurance, etc.
Won’t our reserve fund cover the deductibles?
This is the opportunity to explain why the reserves is not likely to cover EQ damage, without depleting them. If an association is 100% funded, it helps; however, that may mean that there is enough in the bank to replace the asphalt and fencing that are due to be repaired, but not the roofs and siding that are not scheduled for replacement for 15 years.
What is the historical perspective?
This is the opportunity to give a detailed chart or matrix showing coverage for the past years, the percent change in premium and coverage and deductible.
How do the policy limits and deductibles work?
More information can be provided here about scenarios and damages possibilities, etc.
What if the damage exceeds both the deductibles and total loss limit?
This is the opportunity to explain about the possible special assessments, and how much less they are likely to be for shortfalls in the case of serious damage, with coverage, and serious damage, without coverage. It is the opportunity to explain that the "haves" can help the other "haves", themselves, AND the "have nots" by forcing purchase of the coverage. This is because the more resources that the Association has in the event of a big earthquake, the less likely that the owners who stay and pay will have to cover the losses for those who "walk" away for lack of substantial equity (because fewer are apt to "walk").
Since this blog is getting long, I will simply lay out the remaining questions that could be answered in such an informational paper. Believe me, these are things inquiring minds want to know.
What if my building is not damaged – do I have to pay anything?
Can we learn anything from the Northridge Earthquake?
How much was paid out in insurance claims for the Northridge earthquake?
What other steps has the Board taken to address the possibility of earthquakes?
Can the Board be sued for failure to purchase EQ insurance?
Won’t FEMA come in and rescue us for free?
Why not drop coverage now, and pick it up again in the future if it gets cheaper?
What about retrofitting instead of insuring?
What about putting the earthquake premiums into our own emergency fund?
What about fire?
And a wrap up.
This sort of communication can be very helpful to everyone - and I believe, with a better understanding of the facts and options, more people will hang on to the insurance. The pendulum will likely eventually swing the other way with the EQ coverage. Historically, it has.
Posted by Beth Grimm at 10:36 PM
September 6, 2007
More On Contracts - I Promised This
What are some common mistakes that managers and boards in HOAs make in approving contracts?
Here is one of several mistakes that I pointed out in a recent E-Newsletter (which you can access ... and sign up for ... on my website at http://www.californiacondoguru.com):
No Way Out: Many contracts are very vague or noncommital about termination provisions. In other words, it’s easy to get in, but not easy to get out. And if the contract encompasses a lot of work or the term is for a long period of time, and the HOA finds it is very unhappy with the contractor’s work, conduct, reliability, etc.; finding a graceful way out can become very important. A bad working relationship is hard on all the parties. Specifics on incremental evaluation, assessment of work (such as a phased contract), and/or the ability to terminate the contract with or without cause on reasonable notice can become extremely important.
Look for the other common mistakes at the guru site ... simply "Enter" and scroll to the bottom of page two ... you don't know about the site yet?? Tell your friends, or maybe your enemies?? Anyone you think needs to know! That's the guru at http://www.californiacondoguru.com.
Posted by Beth Grimm at 7:24 PM
POWER MISER - SHOULD YOU PROHIBIT HANGING OUT THE LAUNDRY?
Like water preservation issues in HOAs - (see earlier blog) - one can find dichotomies and opposing forces existing with regard to power (utility) preservation matters.
Question - Airing Your [Dirty/Clean] Laundry.
Here's a common question: "My Association Board is freaking out. A bunch of us got together and started hanging laundry out in our back yards - should they even be looking over the fences? They cannot do this, can they. Isn't preserving power important enough to overcome a stupid restriction like this?"
Answer: Many governing documents, at least in California, contain strict prohibitions on hanging laundry out in yards, on decks, patio areas, etc. If an Association has a prohibition on hanging laundry out to dry in the yard, back or front, it probably is enforceable, yes, even with power grids screaming over triple digit heat.
However, take a close look at the documents to see if such regulations apply only to those clotheslines that can be seen over the fenceline or from other units, streets or homes.
There are two clear camps on this one: to some, It's a bit irritating to have such restrictions. Some people are not offended by laundry hanging out on the lawns and would prefer to exercise the right to preserve power. Some simply like the smell of sheets and clothing dried in the fresh air. Believe it or not, lawyer part of me aside, and maybe its a midwestern thing - I can relate. Laundry blowing in the breeze and freshly aired bedding and clothing evokes fond memories of growing up in a place where there were no backyard fences and neighbors were neighborly.It may be a European thing too. I have seen evidence of this in several instances. One involved the stringing of laundry across the courtyard in a quaint little hotel in Tellum, Mexico, by a group of visiting Europeans.
On the other hand, I certainly understand that not everyone likes the same things. Many prefer pristine yards and perfectly coifed landscaping, consistency in aesthetics and no clotheslines - obviously so, because I have seen this prohibition in many, many documents.
This might be something you want to look for - if you have plans to skip the dryer and concommitant expense.
Posted by Beth Grimm at 6:53 PM
Water Preservation Quandaries - Go With the Flow?
As often happens, one topic leads to another. In a recent blog I mentioned something about many HOA documents having one year limitation on contracts and this lead to some questions about water saving service contracts. Since water preservation is a hot topic, I have had a few quite interesting items come up related to water conservation issues. It brings to mind the quandary of balancing ecological needs and water conservation with common homeowner association restrictions and practices. See what you think:
Question One - Water Saving Service Contracts. Our local municipal government is offering incentives for installation of water saving practices/services in our association and other entities like ours; however, these incentives relate to ongoing services and the minimum contract term is going to be 5 years to take advantage of the incentive program. We have a problem in that our bylaws limit contracts that the Board can approve to one year. Can we take advantage of this without a homeowner vote?
Answer: In California, a large percentage of HOAs have a one year limitation on contracts. (I believe this comes through a Dept. of Real Estate regulation for HOA Bylaws to be approved for initial developments, but do not have a citation handy for it.) As stated in the earlier blog, many boards overlook these limitations. Doing so does not void a contract but it does make the Board look bad and may lead to a breach of fiduciary duty claim. It is better to honor the documents, always.
Now, how to resolve this issue. Like the cable companies that came in years ago (did anyone deal with Astound reps - I did), the company, because of pressure based on these common limitations, allowed in many cases a "one-year-term with automatic roll-over provision-contract". I do not know if this is possible in this municipally-driven situation. Another possibility would be to take a vote of the members to see if they are in favor of getting the incentive. This subject is not one of those that requires the double envelope balloting system and could be accomplished at a membership meeting where a quorum is present or by written ballot under the Corporations Code. The other option is to propose an amendment to the bylaws to allow this type of contract as an exception to the one year rule. That would require voting under the double envelope secret ballot system (see how the legislators can complicate things??). Some common exceptions to the one-year limitation found in California bylaws are: insurance contracts (although the days of 3 year premium-saving insurance contracts are long gone), cable, laundry, and management service contracts.
The issue is whether boards should be able to tie their associations into long term contracts. It makes sense when the contract is beneficial to the membership, but as to various subjects, including common exceptions, the question of allowing one Board to tie up the Association in contracts for several years, even for a beneficial service, can be debatable.
Question Two. Low Flow Toilets: Our board proposed, and the membership passed, a measure that requires Owners to change out high flow (is that the right term?) flushing toilets to "low flow toilets." Can they legally make me change out my toilets? I own them and am responsible for the maintenance of them, and do not want them. They tend to clog rather easily and cause other problems. Can I fight this?
Answer: Yikes - this is a good question. Generally the Association can propose, and members can approve, measures that generally affect the membership. While I would not think the Association Board could demand, based on such a vote, that an owner change out flooring or sinks or tubs or anything that does not have an affect on one's neighbors (unless a defect was found that jeopardized the structures or systems), low flow toilets and shower heads may be a different story. Some people just do not like them. However, because of severe water shortages in this state (California), an Association may be able to justify such a proposal and enforcement of it. All HOA water bills are likely to soar, the State is pushing hard for water conservation efforts, and this is one way of forcing it on people who are holdouts in Associations where the majority of the membership is water-conscious. I do not know of any high court binding authority that specifically applies to this situation, and do not believe there are any laws that support enforcement of such a measure, other than the general premise arising from various cases that stands for the proposition that the restrictions in an HOA can change by owner vote and the will of the majority.
Feel free to send me your thoughts on this.
Posted by Beth Grimm at 6:11 PM