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JUSTIFIED EXPENDITURES

Q. 
Can the board of directors of our association spend association funds on what amounts to a political issue? The board wants to spend funds to stop a nearby development, based on the belief that it will harm the value of homes in our community.

A. 
Absent a prohibition in the association’s bylaws or CC&Rs, the board can probably justify the expenditure so long as they act:

1.      In good faith;

2.      In the best interest of the association;

3.      After becoming fully informed, and

4.      After deliberating as a body before deciding. Top


CORPORATION OR UNINCORPORATED ASSOCIATION

Q. 
Are all homeowner associations corporations?

A. 
No. However, in California 99% are corporations. The others are unincorporated associations. Top


SPECIAL MEETINGS

Q. 
Who can call for a special meeting of the members of a homeowners association?

A. 
A special meeting can be called by the board, the chairman of the board, the president, or any group of members, consisting of at least five percent. Top


POWERS OF CORPORATION

Q. 
Our homeowner’s association is incorporated.  What are the general powers of a corporation?

A. 
The powers of a corporation are those

1.   Set forth in the articles of incorporation;

2.   Set forth in the bylaws;

3.    Established by law; and

4.   Existing for a natural person unless prohibited by the articles and/or bylaws.

The powers established by law are too numerous to include in this column. Top


RIGHT TO VOTE

Q. 
Our townhome association has a provision in the bylaws that prohibits members from voting at association elections if they are delinquent in their assessments.  Is this provision legally enforceable?

A. 
Yes, with one possible exception.  If a delinquent member has filed for bankruptcy, any attempt to penalize the member for unpaid assessments accrued prior to the filing may be considered by the court a violation of the automatic stay.  While I am not aware of a case on this point, I do not recommend that your board take such action in the event of a bankruptcy. Top


VOTING BY PRESIDENT OF BOARD

Q. 
Historically, the President of our homeowner association board has voted only to break ties.  Is this procedure required by law?

A. 
No.  The President of your board may vote on any matter unless prohibited by your bylaws.  This is possible, but it would be highly unusual. Top


RIGHTS OF MEMBERS

Q. 
When a corporation for a homeowner association issues memberships, must the rights of each member be equal?

A. 
No.  In accordance with Section 7330 of the California Corporations Code, a corporation may issue memberships having different rights, privileges, preferences, restrictions, or conditions, as authorized by its articles or bylaws.  However, except as provided in or authorized by the articles or bylaws, all memberships shall have the same rights, privileges preferences, restrictions and conditions. Top


RECUSAL BY BOARD MEMBER

Q. 
When is it appropriate for a member of our homeowner association board to recuse himself?

A. 
A board member should recuse or disqualify himself or herself because of self interest, bias or prejudice.  If a board member does not recuse himself or herself when required, he or she will have a conflict of interest.  If a board member votes on a matter where he or she has a conflict of interest, he or she violates his or her fiduciary duty. Top


MINIMUM NUMBER OF BOARD MEETINGS

Q. 
The board of directors of our homeowners association rarely holds meetings. Our bylaws do not specifically address this issue. How often are boards required to have meetings?

A. 
Normally, the frequency of board meetings is set forth in the association bylaws, or in some instances, in the CC&Rs. If your governing documents are silent concerning the number of board meetings to be held each year, there is still a statutory minimum. The California Corporations Code requires non-profit mutual benefit corporation boards to meet at least twice each year. Also, in accordance with California Civil Code 1365.5, a board of directors of an association must review its finances at least each quarter year. Consequently, a board must meet at least four times each year.

Whether a board of directors should meet more often than four times each year depends upon the amount of business to be conducted by the association. Top


ELIGIBILITY TO SERVE ON BOARD

Q. 
I own a townhome, however, I don’t reside in it. Am I still eligible to be a member of the board of directors?

A. 
It depends upon your bylaws. Some bylaws permit non-resident owners to be members of the board. Some do not. There is nothing in the California Corporations Code to prohibit you from being a member. Top


CONFLICTS BETWEEN DOCUMENTS

Q. 
In reviewing the bylaws and CC&Rs (Covenants, Conditions and Restrictions) of our homeowner association, our board has noted several conflicts. Which document takes precedence?

A. 
CC&Rs take precedence over bylaws when a conflict occurs. Top


GOVERNING DOCUMENTS

Q. 
The CC&Rs (Covenants, Conditions and Restrictions) of our homeowners association refers to the term "governing documents". Are rules of the association included within the definition of governing documents?

A. 
Yes. Section 1351 of the California Civil Code defines governing document as CC&Rs (Covenants, Conditions and Restrictions), bylaws, operating rules and articles of incorporation. Top


DEPARTMENT OF REAL ESTATE

Q. 
Does the Department of Real Estate assist with the enforcement of homeowner association bylaws and CC & Rs?

A. 
Homeowner associations are subject to the Davis-Stirling Common Interest Development Act (California Civil Code Sections 1350 et seq.), which is designed to provide homeowners with a system of self government and dispute resolution. The Department of Real Estate reviews the legal framework of all new homeowner associations to ensure compliance with the Subdivided Lands Law through the public report application process prior to the homes being offered for sale to the public. Once sales have commenced, the Department’s jurisdiction is limited to the subdivider’s obligations under the public report, which does not include intervention in association disputes. Presently, there is no state or local agency that regulates associations or their members. Top


GRANDFATHER PROVISION

Q. 
What does it mean to grandfather something?

A. 
A grandfather provision or grandfathering creates an exception to a new rule. For example, if a new rule restricted members of an association from painting their home the color gray, a member who already had a gray home would not be required to change it. The restriction would apply to all homes not already gray. Grandfathering is standard procedure for most new rules but not in every situation.Top


ELECTING A CONVICTED FELON

Q. 
A convicted felon was recently elected to our board and made treasurer. The board believes he has paid his debt and has learned a lesson. They claim he is now a model citizen. Many owners are very concerned. What are your thoughts?

A. 
It is not illegal to elect a convicted felon to the board of an association and it is not illegal to make the person treasurer. Notwithstanding, the fact should be disclosed in writing to your association’s directors and officers liability insurance carrier to determine whether they will cancel or not renew the policy if the individual continues to serve. In addition, if you have coverage for dishonest acts, you may run into the same problem. I believe it is a matter of poor judgment to elect this individual to the board and then make him the treasurer. Top


CONFLICT OF INTEREST

Q. 
I am a licensed real estate agent in Oxnard that lives in a community association. I have represented people who have purchased homes within the community and people who have sold their homes. I have been informed by the President of the board that I may not serve on the board because my work as an agent conflicts or may conflict with my responsibilities as a board member. The President has requested that I sign a statement acknowledging his conclusion. What are your thoughts?

A. 
I have the following comments:

The fact that you have a real estate license and represent buyers and sellers within the community does not by itself create a conflict of interest between you and the association, buyer or seller.
   
While it is possible that a conflict could develop between you and the association, or a prospective buyer or seller of a home in your community, this is also possible with unlicensed board members.
   
Should a conflict of interest develop between any board member and the association, or a potential buyer or seller, any such conflict would not disqualify the person from serving on the board. It would simply mean that the particular board member could not vote on a matter involving the subject of the conflict.
   
The fact that a licensed board member knows that a seller is in foreclosure does not create a conflict. The fact that a seller is in foreclosure must be disclosed by an agent to a prospective buyer whether the agent is on the board or not.
   
Business that is conducted outside of executive sessions must be reflected in the association’s minutes which is information routinely provided to prospective buyers. Consequently, this information is not confidential and providing it to potential buyers would not by itself create a conflict.
   
Should a seller be delinquent in paying his or her assessments, that information would be confidential and should not be disclosed to a prospective purchaser by any board member. The fact that a licensed board member has such information does not create a problem any more than an agent knowing that a seller will accept a certain price, or a buyer will pay a certain price, creates a problem. The agent is simply under a duty not to disclose such information to the other party. This is routine in the real estate business.
   
Sellers have an interest in making certain that all material facts are disclosed to a prospective buyer because failure to do so, could result in legal liability. An agent who is on the board of a community association is clearly in an excellent position to make a complete disclosure when representing a person who owns a home within that community.
   
Buyers have an interest in receiving and evaluating all material facts concerning a property that is under consideration for purchase. An agent who is on the board of a community association is in an excellent position to make a complete disclosure of all material facts regarding a home within that community.
   
During many years of practicing law as a homeowner association and real estate attorney, I have had the opportunity to observe and deal with many board members. While each board member is an individual with different skills, attributes, and attitudes, it is my opinion that real estate agents generally make excellent board members. Real estate agents tend to be professional in dealing with association business and the knowledge gained in preparing for the licensing exam has great value.   Top
   
   

UNIT IN FAMILY TRUST

Q. 
Our board is not in agreement on the subject of who is entitled to vote when a unit is owned by a family trust. Who is entitled to vote?

A. 
The trustee is entitled to vote. This person is probably also the trustor or grantor of the trust, but not always. Top


MEMBER IN GOOD STANDING

Q. 
Our governing documents do not include a definition of a "Member in Good Standing". How is it defined absent a provision in the CC&Rs and Bylaws?

A. 
A member in good standing is a member as defined in the Bylaws who is current in paying his or her assessments and not in violation of the governing documents. To declare a member to be not in good standing requires a due process hearing by the board in open session unless the member requests that it be held in executive session.  Top


BOARD MEETING NOT HELD

Q. 
The board of directors of our homeowners association has not held an annual meeting to elect new directors for more than 18 months even though our bylaws require an annual meeting to be held. I have requested that our "annual" meeting be held, but have been ignored. What can I do?

A. 
If a corporation with members is required by its bylaws to hold a regular meeting and fails to do so for a period of sixty days after the date designated, or if no date has been designated, for a period of fifteen months after its last regular meeting, the superior court of the county may summarily order a meeting to be held upon application of a member after notice to the board giving it an opportunity to be heard.  Top


LEGAL LIABILITY CREATED

Q. 
We own a unit in a ten unit condominium building in Studio City that is in very poor condition. Of the ten units, three are severely delinquent in paying their monthly assessments. We had five board members, then three, and then only one. The last board member just resigned. The management company does very little, but they are better than nothing. What should we do?

A. 
You should immediately read your association’s bylaws to determine the procedures for calling a special meeting to elect a board of directors, and then call for an election. You may need legal advice. If you do not have a board of directors, your management company contract remains in force, but the company cannot authorize new expenditures, except possibly for emergencies, or make decisions that are reserved to the board. They will be operating without any direction or oversight from the board. Other problems include:

Reserve checks cannot be signed which means important repairs and replacements will be delayed likely increasing costs;
   
The CC&Rs and Rules cannot be enforced;
   
Lawsuits cannot be defended if the association is sued;
   
Lawsuits cannot be filed by the association making it easy for members of the association, contractors, vendors, and others to take advantage of the circumstances;
   
The association cannot take the action required to collect delinquent assessments making your situation worse;
   
Members and potential buyers will probably find it impossible to get mortgage loans; and
   
Values will decline.
   

You must address the issue immediately or things will get much worse.  Top


BOARD MEMBER QUALIFICATIONS

Q. 
Our homeowner association’s bylaws are silent on the subject of who can serve on the board. Are there any restrictions established by law?

A. 
No. If your bylaws are silent, anyone can serve as a director, assuming they are elected in accordance with the association’s bylaws and the Davis-Stirling Act. This includes members, non-members, spouses, and tenants.  Top


NO GOVERNMENT AGENCY

Q. 
Our homeowners association in Lancaster is not being run properly by the board of directors. Is there a government agency that has the power to oversee homeowners associations?

A. 
Unless the developer is still involved as an owner, no such government agency exists in California. Every member of the association has the right to enforce the governing documents through the process of Alternative Dispute Resolution (ADR) which involves either mediation or arbitration, or through use of the courts.

If the developer is still involved, the California Department of Real Estate will have jurisdiction over some matters.

Some disputes are political in nature and have nothing to do with enforcement of the governing documents. These types of disputes can only be resolved through the election process. A board of directors of an association has the power to do a great deal of good or harm. Consequently, electing a quality board is critical to the success of your association.  Top


DAVIS-STIRLING ACT

Q. 
What exactly is the Davis-Stirling Act?

A. 
The Davis-Stirling Common Interest Development Act consists of sections 1350 through 1378 of the California Civil Code. These code sections deal exclusively with common interest developments, which includes community apartment projects, condominiums, planned developments, and stock cooperatives. Other laws which affect common interest developments are the Federal Communication Commission Regulations, California Health and Safety Code, Corporations Code, Code of Civil procedure and Government Code.  Top


NOT REGULATED BY DAVIS-STIRLING

Q. 
Our homeowners association in Los Angeles is incorporated, but has absolutely no common area. Are we still regulated by the Davis-Stirling Act?

A. 
No. You are regulated primarily by your CC&Rs and the California Corporations Code.  Top


MANAGEMENT COMPANY AS INSPECTOR OF ELECTIONS

Q. 
Is it legally permissible for the management company for a homeowner association to act as the inspector of elections?

A. 
Yes, but only if the board has adopted an election rule permitting the management company to act as the inspector of elections. Otherwise, inspectors must fall into one of the following categories:

A licensee of the California Board of Accountancy;
A volunteer poll worker with the County Registrar of Voters;
A Notary; or
A member of the association who is not a candidate for the board of directors or related to a candidate, or a current member of the board of directors.
  Top

VOTE ENDS IN TIE

Q. 
What should we do if the election of directors results in a tie?

A. 
The nominees who are tied can either compete in a runoff election or can simply flip a coin if they are agreeable. If a runoff election is scheduled, the newly elected directors who are not tied should begin serving immediately.  Top


CC&Rs NEED TO BE RESTATED

Q. 
Our association has not restated its CC&Rs since 1978. Can we amend our CC&Rs to require that they be restated every five years?

A. 
No. Since the members of every association must approve amendments and restatements, your association cannot require that the CC&Rs be amended or restated. However, you can require that the board submit proposed restated CC&Rs to the membership for their approval every five years.

If you answer “yes” to one or more of the following questions, you should seriously consider revising your governing documents:

1. Are your CC&Rs over five years old?
   
  If so, the document does not reflect a substantial portion of the legislation specifically enacted by the state legislature to govern the conduct and administration of associations.

It is important to realize that one of the primary purposes of CC&Rs is to provide notice to the members (including new buyers) of their legal rights and obligations. Revised CC&Rs, which reference all of the current code sections, will meet the disclosure obligations of the board and management company.
   
2. Does your board find it necessary to regularly obtain legal opinions regarding provisions in the documents either because they are ambiguous or because they do not include recently enacted legislation?
   
  Revised documents will be clear, concise and comprehensive. While the need for future legal opinions may not be completely eliminated, well written, up-to-date documents can substantially reduce the need for legal opinions and can save your association far more money, in the long run, than the short term cost of revision.
   
3. Do your governing documents adequately address possible disasters such as earthquakes and fires?
   
Until the 1994 Northridge Earthquake, many governing documents did not address this complex issue adequately. For example, after the earthquake, it became obvious that many governing documents required boards to make critical decisions before it was possible for them to become adequately informed on all relevant issues. This often resulted in less than optimum decisions that turned out to be very expensive for the association.
   
4. Do your governing documents include obsolete references to the developer and the rights of the declarant which cause confusion?
   
  These obsolete provisions can be eliminated, thus making the documents more concise and clear.
   
5. Do your governing documents omit important rules (such as parking rules) that, if included, would improve your ability to manage the association?
   
  If your rules are inadequate, comprehensive (and legally enforceable) rules can be included in a revised set of governing documents.
  Top





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