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Debra L. Sheppard & Associates, Legal News, Los Angeles818-676-0848
dsheppard@sheppard-law.com

NEW LAWS AFFECTING HOMEOWNERS ASSOCIATIONS IN 2007

ASSESSMENTS - AB 2624

  • The bill amended several sections of the Civil Code relating to non-judicial foreclosures.  Civil Code Section 1367.1 was  amended to permit a trustee in a non-judicial foreclosure to collect the cost of service of a notice of default commencing a non-judicial foreclosure pursuant to Section 1367.1(j) or the service of the decision of the board to foreclose pursuant to Section 1367.4.
     
  • Civil Code Section 1367.4 was amended to provide that the notice of sale in a non-judicial foreclosure shall include a statement that the property is being sold subject to a 90 day right of redemption following the sale date.
     
  • Section 2924 of the Civil Code relating to non-judicial foreclosures has been amended to provide that the functions or  procedures necessary to carry out the duties relating to a non-judicial foreclosure are privileged communications which cannot form the basis for an action for defamation.

    Unless you use non-judicial foreclosures to collect assessments, these changes in the law related to the collection of assessments will have no impact on your association.

Homeowner association boards and managers got a break this year.  The California Legislature only sent a few bills to the Governor for passage.  The major bills was a clean-up bill for the election laws passed last year and more requirements for reserve funding and disclosures.

LANDSCAPING/WATER CONSERVATION - AB 1881

  • This bill adds Section 1353.8 to the Civil Code to prohibit architectural guidelines of a common interest development from prohibiting or including conditions which would prohibit the use of low water-using plants as a group.Condo Association News, Bills, Assessments, Civil Code Updates
  • Provisions are added to the Government Code to require cities and counties to adopt a water efficient landscape ordinance on or before January 1, 2010 to conserve water.
  • The bill also adds a provision to the Public Resources Code to require the Energy Commission by January 1, 2010 to adopt requirements for irrigation controllers  and moisture sensors to conserve water.
  • The bill will require boards of directors and managers to review the architectural guidelines in order to determine whether there are any prohibitions against low water-using plants.  If there are prohibitions, the guidelines will have to be amended and submitted to the owners for a comment period.

TOWING - AB 2210

Vehicle Code Section 22658.2, which authorizes common interest developments to tow, has been repealed.  The authority for  common interest developments to tow has been added to Vehicle Code Section 22658.  This means the following for associations:

  • The sign which is posted at all entrances to the development must now include the name and phone number of any towing company that is a part to a general towing authorization agreement with the association.
  • An association may not tow unless the vehicle has been issued a notice of parking violation and 96 hours have elapsed since the issuance of the notice.
  • The amendment expands an association’s power to tow, including the towing of vehicles on private property which lack an engine, transmission, wheels, doors, tires, windshields, or any other major part or equipment necessary to operate safely on the highways. Twenty-four (24) hours has elapsed since notice was provided to the local traffic law enforcement agency.
  • An association would be held liable for double the storage or towing charges for causing a vehicle to be towed whenever there is a failure to comply with the above three requirements or to state grounds for removal if requested by the legal or registered owner of the vehicle.
  • The tow truck operator removing the vehicle must try to ascertain the name and address of the registered and legal owner of the vehicle and immediately give notice in writing to the owner of the removal, the grounds for the removal, and the location to which the vehicle has been removed.  
  • A towing company may not remove or commence the removal of a vehicle without first obtaining the written consent from an association, or an employee or agent, who shall be present at the time of removal and verify the alleged violation.  This provision appears to have been enacted in accordance with a new law passed by Congress (The  Safe, Accountable, Flexible, and Efficient Transportation Equity Act of 2005) which allows local governments to prohibit towing  contractors from removing vehicles from a community association without first receiving a call from a manager or board member and requiring a manager or board member to be present at the time of towing. 
  • An association may still tow a vehicle unlawfully parked within 15 feet of a fire hydrant or in a fire lane or in a manner which interferes with an entrance to, or exit from, the development. The association may grant general authorization in writing to a  towing company to remove or commence removal of a vehicle at the towing company’s discretion, without the presence of an association representative.  The towing company is required to take a photograph of the vehicle which clearly indicates the  parking violation and provide a copy of that photograph to the owner when the vehicle is claimed.

BILLS & AMENDMENTS

ELECTIONS/RECORDS INSPECTION - SB 1560
(The amendments are effective immediately.)

    ELECTIONS
    Civil Code Section 1363.03, which went into effect on July 1, 2006, prescribed procedures for election rules, conducting elections, and penalties for failure to follow the procedures.  This Section was amended pursuant to SB 1560 to clarify the procedures and answer questions raised by the new law.  The amendments are as follows:

      (1) The inspectors of election are permitted to appoint additional independent third parties to verify signatures and to count and tabulate votes.

      (2) The inspector of election or designated representative may verify the validity of a member’s signature and address on the ballot envelope prior to the meeting at which the ballots are  tabulated.

      (3) Recall elections must be conducted by secret ballot.

      (4) If the governing documents require a quorum for an election, the secret ballots may be counted to quantify the quorum.

      (5) If cumulative voting is permitted in the governing documents, cumulative voting is permitted in the secret ballot elections.

      (6) Proxy is defined as a written authorization signed by a member giving another member the power to vote on behalf of the member and clarifies that proxies may be  used.  Proxies shall not be used in lieu of a ballot.

      (7) In the event of a challenge to an election requiring a recount, the inspector of election and not the association shall make the ballots available to the member to review and inspect.

      (8) Nomination of candidates may be made in a membership meeting or by any other method.

      (9) Permits write-in candidates.

      (10) Except for the meeting to count the votes, an election may be conducted entirely by mail.

      (11) In the event of conflict between the Civil Code and Non-Profit  Mutual Benefit Laws (Corporations Code), the Civil Code shall prevail.

      These changes to the new election laws provide answers to questions which have arisen and  clarity following the enactment of the election laws.

    INSPECTIONS
    Civil Code Section 1365.2 is amended as follows:

      (1) To allow an association to deliver specifically identified records by electronic transmission as long as the records may not be altered.

      (2) To provide that the  financial documents which may be inspected shall be prepared in accordance with an accrual or modified accrual basis of accounting.

      The changes to Civil Code Section 1365.2 will permit managers to deliver certain documents by electronic transmission but will require managers to ensure that the records  may not be altered.  If the association does not prepare accounting documents in accordance with an accrual or modified accrual basis of accounting, the management or  accountant will have to provide financial documents prepared in that manner.
       

MANAGERS/OMBUDSPERSON - AB 770

    This bill, which was vetoed by the Governor, would have established in the Department of Consumer Affairs, the office of the Common Interest Development Ombudsperson.  The Ombudsperson’s purpose would be to resolve common interest development disputes, offer training materials and courses to common interest development directors, officers, and owners, report to the Legislature annually, and to submit recommendations on specified topics to the Legislature.  The  Governor’s veto message was that the bill was unnecessary at this time due to recent legislation which required the Department of Consumer Affairs to develop on-line education  and the requirement that associations provide dispute resolution procedures.  


RESERVES - AB 2100

  • RESERVE FUNDING PLAN
    Assembly Bill 2100 was signed into law by the Governor on August 28, 2006 and is effective January 1, 2007, except as otherwise noted below.  Pursuant to the Bill, Civil Code Section 1365.5 is amended to require reserve studies to include a “reserve funding plan”.  The plan shall indicate how an association intends to fund the reserve contributions required to repair and replace all major building components with an expected remaining life of 30 years or less.  The plan, to be adopted at an open board meeting, shall include a schedule of the dates and amounts of any change in the regular or special assessments which will be  required to fund the reserves.  If an assessment increase is required to fund the reserve funding plan, the board shall approve such an increase in a separate action  consistent with Civil Code Section 1366.  This means that if the regular assessments need to be increased more than 20%, the increase will need to be approved by the Members.
     
  • ANNUAL DISCLOSURES
    Commencing January 1, 2009, a summary of the reserve funding plan adopted by the board shall be included in the annual disclosures with the pro forma budget.  The summary shall notify members that the full reserve funding plan is available upon request.  This section requires the association to provide a copy  upon request by a member.
     
  • CHANGES TO PRO FORMA OPERATING BUDGET 
    AB 2100 also amends Civil Code Section 1365 to require the pro forma operating budget to include the current deficiency in reserve funding on a per unit basis, a statement as to whether the board has determined to defer or not undertake repairs or replacement of major components , and a statement as to whether the association has any outstanding loans with a term of more than one year.  The disclosure on the loans shall include the payee, interest rate, amount outstanding, annual payment, and when the loan is scheduled to be repaid.  If the board decides to defer or not undertake repairs or replacement of components with a  remaining life of 30 years or less, the board must include a justification for the decision (such as the homeowners refusing to approve increases in the regular assessments or a special assessment) . If the homeowners fail to approve a necessary increase in the assessments to fund the reserve funding plan, the reserve funding plan will have to  reference the failure to obtain approval of assessment increases.    
     
  • CHANGES TO ASSESSMENT AND RESERVE FUNDING DISCLOSURE SUMMARY
    Civil Code Section 1365.2.5 is amended to make revisions to the Assessment and Reserve Funding  Disclosure Summary.  Subparagraphs (a)(5), (6) and (7) are added to Section 1365.2.5 .  Minor changes have been made to Subparagraphs (a)(2) and (4).  One of the major revisions requires the board to estimate the amount in the reserve fund at the end of each of the next five budget years, taking into account only assessments already  approved and other known sources of revenue.  The disclosures required in the form also include a projection of the cash balance in the reserve fund at the end of the current  fiscal year and a statement as to what percent the reserves will be funded. See Civil Code Section 1365.2.5 for the new language. 

    The new requirements previously  discussed mandate that the board and reserve study analyst project into the future to ensure that the contributions sufficiently fund the reserves.  Future increases in other necessary expenses, such as insurance, would have to be considered to make the projection because those expenses could result in a reduction of the assessments available for  reserves.

    Since many managers prepare the annual disclosures for associations which they manage, these new reserve funding and disclosure requirements will increase  their duties and responsibility, as well as the duties of any accountants or other persons who prepare the budgets.  

2006
NEW LAWS AFFECTING HOMEOWNERS ASSOCIATIONS IN 2006

Senate Bill 137
, regarding the collection of assessments, was signed into law by the Governor.  The Governor’s office announced that the Bill, among others, was signed because it will “benefit California’s senior citizens and veterans by strengthening the rights of residents in retirement communities, increasing the ability of veterans to buy homes and by promoting greater transparency and fairness in homeowners associations.”  Senate Bill 61 governing election procedures, Assembly Bill 1098 governing inspection of association records and grants of common area, and Senate Bill 853  relating to architectural approvals were also signed into law by the Governor.  A summary of the laws follows:

OTHER BILLS

ELECTIONS/RECORDS INSPECTION - SB 1560
(The amendments are effective immediately.)

    ELECTIONS
    Civil Code Section 1363.03, which went into effect on July 1, 2006, prescribed procedures for election rules, conducting elections, and penalties for failure to follow the procedures.  This Section was amended pursuant to SB 1560 to clarify the procedures and answer questions raised by the new law.  The amendments are as follows:

  • (1) The inspectors of election are permitted to appoint additional independent third parties to verify signatures and to count and tabulate votes.

    (2) The inspector of election or designated representative may verify the validity of a member’s signature and address on the ballot envelope prior to the meeting at which the ballots are tabulated.

    (3) Recall elections must be conducted by secret ballot.

    (4) If the governing documents require a quorum for an election, the secret ballots may be counted to quantify the quorum.

    (5) If cumulative voting is permitted in the governing documents, cumulative voting is permitted in the secret ballot elections.

    (6) Proxy is defined as a written authorization signed by a member giving another member the power to vote on behalf of the member and clarifies that proxies may be  used.  Proxies shall not be used in lieu of a ballot.

    (7) In the event of a challenge to an election requiring a recount, the inspector of election and not the  association shall make the ballots available to the member to review and inspect.

    (8) Nomination of candidates may be made in a membership meeting or by any other method.

    (9) Permits write-in candidates.

    (10) Except for the meeting to count the votes, an election may be conducted entirely by mail.

    (11) In the event of conflict between the Civil Code and Non-Profit  Mutual Benefit Laws (Corporations Code), the Civil Code shall prevail.

    These changes to the new election laws provide answers to questions which have arisen and  clarity following the enactment of the election laws.

    INSPECTIONS
    Civil Code Section 1365.2 is amended as follows:

      (1) To allow an association to deliver specifically identified records by electronic transmission as long as the records may not be altered.

      (2) To provide that the  financial documents which may be inspected shall be prepared in accordance with an accrual or modified accrual basis of accounting.

The changes to Civil Code Section 1365.2 will permit managers to deliver certain documents by electronic transmission but will require managers to ensure that the records may not be altered.  If the association does not prepare accounting documents in accordance with an accrual or modified accrual basis of accounting, the management or accountant will have to provide financial documents prepared in that manner.
 

MANAGERS/OMBUDSPERSON - AB 770
This bill, which was vetoed by the Governor, would have established in the Department of Consumer Affairs, the office of the Common  Interest Development Ombudsperson.  The Ombudsperson’s purpose would be to resolve common interest development disputes, offer training materials and courses to common interest development directors, officers, and owners, report to the Legislature annually, and to submit recommendations on specified topics to the Legislature.  The Governor’s veto message was that the bill was unnecessary at this time due to recent legislation which required the Department of Consumer Affairs to develop on-line education  and the requirement that associations provide dispute resolution procedures.  

RESERVES - AB 2100

  • RESERVE FUNDING PLAN
    Assembly Bill 2100 was signed into law by the Governor on August 28, 2006 and is effective January 1, 2007, except as otherwise noted below.  Pursuant to the Bill, Civil Code Section 1365.5 is amended to require reserve studies to include a “reserve funding plan”.  The plan shall indicate how an association intends to fund the reserve contributions required to repair and replace all major building components with an expected remaining life of 30 years or less.  The plan, to be adopted at an open board meeting, shall include a schedule of the dates and amounts of any change in the regular or special assessments which will be  required to fund the reserves.  If an assessment increase is required to fund the reserve funding plan, the board shall approve such an increase in a separate action  consistent with Civil Code Section 1366.  This means that if the regular assessments need to be increased more than 20%, the increase will need to be approved by the Members.
  • ANNUAL DISCLOSURES
    Commencing January 1, 2009, a summary of the reserve funding plan adopted by the board shall be included in the annual disclosures with the pro forma budget.  The summary shall notify members that the full reserve funding plan is available upon request.  This section requires the association to provide a copy  upon request by a member.
  • CHANGES TO PRO FORMA OPERATING BUDGET 
    AB 2100 also amends Civil Code Section 1365 to require the pro forma operating budget to include the current deficiency in reserve funding on a per unit basis, a statement as to whether the board has determined to defer or not undertake repairs or replacement of major components , and a statement as to whether the association has any outstanding loans with a term of more than one year.  The disclosure on the loans shall include the payee, interest rate, amount outstanding, annual payment, and when the loan is scheduled to be repaid.  If the board decides to defer or not undertake repairs or replacement of components with a  remaining life of 30 years or less, the board must include a justification for the decision (such as the homeowners refusing to approve increases in the regular assessments or a special assessment) . If the homeowners fail to approve a necessary increase in the assessments to fund the reserve funding plan, the reserve funding plan will have to  reference the failure to obtain approval of assessment increases.    
  • CHANGES TO ASSESSMENT AND RESERVE FUNDING DISCLOSURE SUMMARY
    Civil Code Section 1365.2.5 is amended to make revisions to the Assessment and Reserve Funding  Disclosure Summary.  Subparagraphs (a)(5), (6) and (7) are added to Section 1365.2.5 .  Minor changes have been made to Subparagraphs (a)(2) and (4).  One of the major revisions requires the board to estimate the amount in the reserve fund at the end of each of the next five budget years, taking into account only assessments already  approved and other known sources of revenue.  The disclosures required in the form also include a projection of the cash balance in the reserve fund at the end of the current  fiscal year and a statement as to what percent the reserves will be funded. See Civil Code Section 1365.2.5 for the new language. 

    The new requirements previously  discussed mandate that the board and reserve study analyst project into the future to ensure that the contributions sufficiently fund the reserves.  Future increases in other necessary expenses, such as insurance, would have to be considered to make the projection because those expenses could result in a reduction of the assessments available for  reserves.

    Since many managers prepare the annual disclosures for associations which they manage, these new reserve funding and disclosure requirements will increase  their duties and responsibility, as well as the duties of any accountants or other persons who prepare the budgets.  


Senate Bill 137, regarding the collection of assessments, was signed into law by the Governor.  The Governor’s office announced that the Bill, among others, was signed because it will “benefit California’s senior citizens and veterans by strengthening the rights of residents in retirement communities, increasing the ability of veterans to buy homes and by promoting greater transparency and fairness in homeowners associations.”  Senate Bill 61 governing election procedures, Assembly Bill 1098 governing inspection of association records and grants of common area, and Senate Bill 853 relating to architectural approvals were also signed into law by the Governor.  A summary of the laws follows:

                                  I.  ASSESSMENT COLLECTIONS (Senate Bill 137)

            A.  NEW PRE-LIEN NOTIFICATIONS: (Civil Code Section 1367.1)

                        (1) An owner may dispute the assessment debt by submitting a written request for Internal Dispute Resolution; and

                        (2) An owner shall have the right to request Alternative Dispute Resolution before a neutral third party prior to the initiation of foreclosure.

            B.  NEW PROCEDURES FOR COLLECTING ASSESSMENTS

                        (1)  Prior to recording a lien (Civil Code Section 1367.1):

                                    (a) An association must offer an owner dispute resolution with a board member.  The statute does not appear to require that the notification be given other than in the pre -lien letter and the request must be made by the owner prior to recordation of the lien.

                                    (b) A majority of the board must approve in an open meeting the decision to record a lien.  This decision may not be delegated to management.  (The property shall be identified only by the parcel number.)

                                    (c) Payment plans may include assessments that accrue during the payment plan and may not impede the association’s ability to record a lien during the payment plan.  Additional late fees may not accrue during the payment plan period if the owner is in compliance.  The association may resume its collection efforts if there is a default in the payment plan.

                        (2)Prior to commencing a foreclosure:

                                    (a) The debt amount, taking into consideration only assessments, must reach $1,800 or the assessments must be 12 months delinquent.  The association has two options for “collecting” assessments of less than $1,800: (1) Small Claims Court or, (2) recording but not foreclosing on a lien.  (Civil Code Section 1367.4)

            If an association chooses to collect in Small Claims Court, it is within the Court’s discretion whether to include assessments accruing after the claim is filed and up to satisfaction of the Judgment, collection costs, late charges, attorneys fees and interest.  These amounts may have to be written off. 

                                    (b) Prior to initiating foreclosure, an association shall offer and participate in dispute resolution, if requested by the owner. The dispute resolution may be either internal or before a neutral third party.

                                    (c)  For non-judicial foreclosures, a notice of default must be served on the owner as if it were a Summons.  This means personal service, substituted service or other means specified by law.  In addition, the owner shall have 90 days following the foreclosure sale to redeem the property by paying in full. 

                                    (d) A board vote to approve foreclosure of an assessment lien shall take place 30 days prior to any public sale.  If the board votes to foreclose the assessment lien, Civil Code Section 1367.4 provides that an owner occupying the unit be providing notice by personal service.  Notice to an owner not occupying the unit shall be by mail. This Section seems to indicate that these procedures take place before the sale but following the foreclosure process. 

                        (3) During the foreclosure process, an owner may designate a second address to which notices must be sent.

            C.  ANNUAL NOTIFICATIONS TO MEMBERS:  Amends Civil Code Section 1365.1 relating to the assessment foreclosure disclosures provided annually to members.  The changes are:

                        (1) Members are to be notified that an association may not use judicial or non -judicial foreclosure to enforce liens recorded after January 1, 2006 if the assessments total less than $1,800.

                        (2)  Foreclosures are subject to the conditions set forth in Civil Code Section 1367.

                        (3)  The decision to record a lien shall be made by the Board and not delegated to a manager. The decision shall be made by a majority of the Board at an open meeting.

            D.  SECONDARY ADDRESS FOR NOTIFICATIONS:  An owner may designate in writing a secondary address for assessment collection notifications and the association will be required to send additional notices to the second address.

            E.  SMALL CLAIMS COURT: (Code of Civil Procedure 116.540) 

            An association may appear through an agent, management company representative, or bookkeeper.

II.  ELECTIONS (Senate Bill 61), operative July 1, 2006. (Civil Code Section 1363.03 is added.).

A.  ELECTION RULES

            An association is required to adopt rules, subject to Member comment procedures, to:

                        (1) ensure that any candidate or member advocating a point of view be provided access to association media, newsletters, or websites during a campaign.  The association may indicate that the candidate or member is responsible for the content of the communication and not the association.

                        (2) Ensure access to common area meeting space during the campaign, at no charge, to all candidates and members advocating a point of view.

                        (3) Specify the qualifications of candidates for the board and procedures for nomination of candidates.  A member shall be permitted to nominate himself or herself.

                        (4) Specify the qualifications for voting, the authenticity, validity and effect of proxies, and the voting period for elections.

                        (5) Specify a method of selecting one or three independent third parties as inspector or inspectors of election.  The association should select one method, such as appointment by the board, election by the members, any other method for selection.

            B.  BALLOTS

                        (1)  A vote on assessments, election of directors, amendments to the governing documents, or the grant of exclusive use of common area shall be held by secret ballot.

                        (2) Ballots and two pre-addressed envelopes with instructions on how to return ballots shall be mailed by first-class mail or delivered by the association to every member not less than 30 days prior to the deadline for voting.  No identification nor signature of the voter shall be on the ballot.  The ballot is inserted into an enveloped which is sealed. In the upper left hand corner of the second envelope, the voter prints and signs his or her name, address and lot or unit number.  The second envelope is addressed to the inspector(s) of election.

                        (3) The ballots are to be stored by the association in a secure place for one year after the election.  In the event of a recall, the ballots shall be made available for inspection by the members.

            C.  INSPECTOR OF ELECTIONS

                        (1) The association shall select one to three independent third party or parties as inspector(s) of election.  Independent third party includes volunteer poll worker with the County, an accountant, or a notary public.  The inspector may also be a member of the association, but not a board member, board candidate, or a relative of these persons.  An inspector may not be someone employed by the association or under contract to the association for compensation

                        (2) The inspector shall:

                                    (a) Determine the number of voters eligible to vote and the voting power
                                         of each.

                                    (b) Determine the authenticity, validity and effect of proxies.

                                    (c) Hear and determine challenges and questions arising out of or in
                                         connection with the right to vote.

                                    (d) Receive ballots.

                                    (e) Count and tabulate all votes in public at an open meeting of the board
                                         or members.  No person shall open or otherwise review any ballot prior
                                         to the time and place at which the ballots are counted and tabulated.

                                    (f) Determine when the polls close.

                                    (g) Determine the result of the election.

                                    (h) Perform any acts which may be proper to conduct the election with
                                         fairness to all members.

                        (3) If there are three inspectors, a decision of the majority shall control.

                        (4) Proxies which indicate a voting preference shall have the voting preference set   
                           forth on a separate page which can be detached. The proxy holder shall vote by
                           secret ballot.

                        (5) The results of the election shall be publicized to all members within 15 days of
                             the election.

            D.  REMEDIES FOR ELECTION PROCEDURES VIOLATIONS

                        (1) A member has one year to file suit to void an election due to the association failing to follow association election rules or the procedures set forth in Civil Code Section 1363.03.

                        (2) A member who prevails is entitled to attorneys fees, costs and a penalty of up to $500 for each violation by the association. A prevailing association shall not recover any costs unless the action was frivolous, unreasonable, or without foundation.

III.  INSPECTION OF ASSOCIATION RECORDS and TRANSFER OF COMMON AREA (Assembly Bill 1098)

            A.  INSPECTION OF RECORDS

                        (1) An association shall make association records and enhanced association records available for inspection and copying by a member or the member’s designated representative.

                        (2)Time - An association must produce records within 10 business days of a written request for records prepared during the current fiscal year.  For records prepared during the previous two fiscal years, the association has 30 days from receipt of a request to provide the records.  Minutes of member and board meetings shall be permanently made available. Starting January 1, 2007, Minutes of committees which have decision making ability shall be permanently made available.

                        (3)  Place- in the association’s business office within the association’s boundaries or at a place that the member and association shall agree.  If the member and association cannot agree on a location or the member specifies certain documents, the association shall make the records available by copying them and mailing them to the member by first class mail.

                        (4)What Records

            Civil Code Section 1365.2 defines “association records” to include financial documents, documents which are provided to prospective purchasers, interim unaudited financial statements including the general ledger, executed contracts (not otherwise privileged under law), written board approval of vendor or contractor proposals or invoices, tax returns, reserve account balances and records of payments from the reserve account, agendas and minutes of meetings of members, directors and committees (except executive session), member lists, and check registers.  “Enhanced association records” are invoices, receipts and canceled checks for payments, purchase orders, credit card statements, statements for services rendered (this should exclude attorney statements), and requests for reimbursement records.   

                        (5)Costs - An association may bill a member for the direct and actual cost of copying and mailing requested documents. The member shall be provided the amount of copying and mailing costs and shall pay the costs prior to receiving records. An association may only bill a member $10 per hour, not to exceed $200, for the time actually and reasonably involved in redacting the enhanced association records.  The association shall inform the member of the anticipated costs and the member shall pay the costs prior to receiving the documents.

                        (6)Redacted Information - information likely to lead to identity theft, information is likely to lead to fraud in connection with the association, information is privileged by law, and information likely to compromise the privacy of a member.  Other redacted information includes executive session minutes, any person’s personal identification information, records of disciplinary actions, collection actions, or payment plans of homeowners, records of services or goods provided to individual members for which the association received monetary consideration, personnel records, (other than payroll records), interior architectural plans for homes.

                        (7)Enforcement - A member who prevails in an enforcement action may recover attorneys fees and a civil penalty of up to $500 for the denial of each separate written request.  A prevailing association in such an action may recover costs if the court finds that the action was frivolous, unreasonable or without foundation.  An association may be entitled to attorneys fees and other reasonable costs and expenses in an action for damages for misuse of the information.  Misuse of the information includes for a commercial purpose or for a purpose not reasonably related to a member’s interest as a member.

            B.  TRANSFER OF COMMON AREA

            Unless the governing documents provide a different percentage, the affirmative vote of members owning at least 67% of the separate interests shall be required before the board may grant exclusive use of any portion of the common area to a member.  An exception to this requirement is available to transfer the burden of management and maintenance of any common area that is generally inaccessible to the members at large.

                          IV.  ARCHITECTURAL MODIFICATIONS (Senate Bill 853)

Section 1378 of the Civil Code is amended to provide that any decision on an architectural application should not violate any governing provision of law, including, but not limited to building codes or other law governing land use or public safety.  It might be best for the architectural committee to require the homeowner to produce a copy of a building permit, if necessary, as a condition of approval.  Last year the Section was added to require that no decision violate the Fair Employment and Housing Act (concerning disabilities).

2005
NEW LAWS FOR HOMEOWNERS ASSOCIATIONS
EFFECTIVE JANUARY 1, 2005 (unless otherwise stated)

            1. RULE CHANGES. (AB1836)  Civil Code Section 1357.120 has been amended to include in the rule changes which requires notification to the Owners thirty days prior to adoption:

            (a) aesthetic or architectural standards that govern the alteration of a separate interest;

            (b) dispute resolution procedures; and

(c) procedures for reviewing and approving or disapproving a physical change to an Owner’s separate interest (architectural procedures)

            2. DISPUTE RESOLUTION PROCEDURES. (AB1836) New provisions have been added to the Civil Code, commencing with Section 1363.810.  Each association is required to provide a fair, reasonable, and expeditious dispute resolution procedure.  In the event an association does not adopt such a procedure, the following procedure is deemed to be fair, reasonable, and expeditious and may be invoked by either party:

            (a) Either party may make a written request to meet and confer;

            (b) An owner may refuse to meet and confer but an association may not refuse a request to Meet and confer;

            (c) The Board shall designate a member of the Board to meet and confer;

            (d) The parties shall meet promptly at a mutually convenient time and place, explain their positions to each other, and confer in good faith in an effort to resolve the dispute;

            (e) A resolution of the dispute agreed to by the parties shall be memorialized in writing and signed by the parties;

            (f) An agreement reached binds the parties and is enforceable by the Court if the agreement is not in conflict with the law or the governing documents and the agreement is consistent with the authority granted by the Board of Directors or ratified by the Board.

            Additionally, the procedures shall provide for prompt deadlines and shall state the maximum time for an association to act on a request to meet and confer.  No fee may be charged to the Owner .  The law is effective on January 1, 2005.  Any proposed procedures are subject to the thirty days’ notice requirement to Owners before the procedures can be adopted.              

            3. PRE-LITIGATION DISPUTE RESOLUTION REQUIREMENTS.  (AB1836)  Civil Code Section 1354 has been amended to exclude the pre-litigation alternative dispute resolution requirement, which will instead be set forth in a new law concerning alternative dispute resolution (Civil Code Section 1369.510). Sections 1369.510 through 1369.590 are added to theCivil Code.  An enforcement action requesting an injunction or declaratory relief may not be filed in the Court unless the parties have endeavored to submit their dispute to mediation, arbitration, conciliation, or other non-judicial procedures that involve a neutral party.  This requirement does not apply to small claims or assessment collection actions.  The process is started by serving a Request for Resolution on the other party. Service of the Request for Resolution shall be made by personal delivery, first-class mail, express mail, fax, or other means reasonably calculated to provide the party on whom the request is served actual notice.  The statute of limitations is tolled during the first thirty days to respond and, if accepted, by an additional 90 days to complete the process. A summary of the procedures must annually be distributed to the Owners with the language “Failure of a member of the association to comply with the alternative dispute resolution requirements of Section 1369.520 of the Civil Code may result in the loss of your right to sue the association or another member of the association regarding enforcement of the governing documents or the applicable law.”  The summary shall include a description of the association’s internal dispute resolution process.     

            4. CONSTRUCTION DEFECT LITIGATION. (AB1836) Code of Civil Procedure Section 383 is repealed and replaced with Civil Code Section 1368.3 through 1368.5.  Section 1368.3 provides that an association’s damages may be reduced by the comparative fault of the association or its managing agents.  Comparative fault shall not be asserted as a cross-complaint but as a defense to offset the association’s potential award.

            5. RESERVE DISCLOSURES (AB2718) Commencing July 1, 2005, an association will have to include the following statements in the distribution with its annual pro forma operating budget: (a) if the association had determined or anticipates levying one or more special assessments to pay for common area repair or replacement or provide for adequate reserves, the estimated amount, and the commencement date and duration of the special assessment; and (2) the mechanism(s) by which the board will fund reserves, including assessments, borrowing, use of other assets, deferral of selected repairs or replacements, or other methods. (Amended Civil Code Section 1365) Section 1365.2 has been added to the Civil Code and provides that the reserve disclosures required by Section 1365 be summarized on a specified form.  The form requires a disclosure of the amount of reserves on hand, the required amount.  The form must accompany the pro forma operating budget each year.  The timing for distributing the budget and other disclosures has been changed to not less than 30 nor more than 90 days preceding the beginning of the fiscal year. 

            6. BORROWING FROM RESERVES (AB2718) Civil Code Section 1365.5 has been amended to require the board to include its intent to borrow from reserves in the notice of the board meeting at which the board will consider transferring funds from the reserve account. The notice must include the reasons for the transfer, some of the options for repayment, and whether a special assessment will be considered.  If the board determines it is in the association’s best interests not to restore the reserve funds within one year, notice of the board’s intent not to restore the funds must be provided to the members.

            7. SELLER’S DISCLOSURES (AB2718) Civil Code Section 1368 has been amended to provide that if the seller requests a copy of the documents to be provided by the buyer from the association, the association may provide those documents in electronic form if the seller requests it.  A reasonable fee may be charged by the association.    

            8. ROOF REPLACEMENT (AB224) Civil Code Section 1353,7 is added which provides that a homeowners association may not require a homeowner to install a roof or repair a roof which violates Health and Safety Code Section 13132.7.  The Health and Safety Code Section requires fire retardant roof covering of at least class B in very high fire hazard severity zones. The fire retardant roof covering must be installed on existing structures when at least 50% of the roof is re-roofed within one year.  This may affect architectural approvals, as the governing documents of a common interest development must allow at least one type of fire retardant roof covering.

            9. ASSESSMENTS (AB 2598) Fortunately, AB 2598, the bill which would have required associations to wait until an assessment delinquency reached $2,500 before commencing foreclosure proceedings was vetoed by Governor Schwartzenegger on September 30, 2004.  New bills are predicted to appear next year and various homeowner association groups will be working with the legislature to introduce bills which will balance the competing interests. 

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Debra L. Sheppard & Associates
6355 Topanga Canyon Boulevard, Suite 235
Woodland Hills, CA  91367

818-676-0848
dsheppard@sheppard-law.com

 

Debra L. Sheppard & Associates, Attorney-At-Law, Los Angeles