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FAILURE TO HOLD ANNUAL MEETING

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


INSPECTORS OF ELECTION

Q. 
Many of the members of our homeowners association don't trust the board to accurately count the ballots at our next annual meeting. Do you have any suggestions?

A. 
Yes. The California Corporations Code sets forth a procedure for appointing "inspectors of election."

Prior to any meeting of members, the board may appoint inspectors of election to act at the meeting. If inspectors of election are not so appointed, the chairman of the meeting may, and on the request of any member, appoint inspectors of election at the meeting. The number of inspectors shall be either one or three. If appointed at a meeting on the request of one or more members, the majority of the members represented in person or by proxy shall determine whether one or three inspectors are to be appointed.

The inspectors of election shall determine the number of memberships outstanding and the voting power of each, the number represented at the meeting, the existence of a quorum, and the authenticity, validity and effect of proxies, and do such acts as may be proper to conduct the election or vote with fairness to all members. Top


PROXY FOR QUORUM PURPOSES

Q. 
I cannot attend the annual meeting of our homeowners association. I would like to give one of my neighbors a proxy to be used only to help establish a quorum, but have been advised that I cannot do this. Is this correct?

A. 
No. Any member of an association can give their proxy to another person to be used exclusively for quorum purposes. You have been given incorrect advice. Top


ELECTION BY MAIL

Q. 
Is it possible for our homeowners' association to hold its annual election by mail?

A. 
Yes. Current law requires that elections be held by mail. Top


QUESTION ABOUT POTENTIAL BOARD MEMBER

Q. 
A member of our homeowner association who is running for the board has been chronically late in paying her monthly assessments.  She has had every excuse under the sun but is now paid up.  Other than the chronic delinquencies, she is bright, knowledgeable and seems to work hard.  What do you think?

A. 
Members of an association who have consistently paid their assessments late, are generally not ideal board members.  You should ask the following questions before you vote for her:

Will she retaliate against the board and / or management company because she has been required to pay late fees and collection costs?  This is a common problem.

Will she attempt to liberalize the association's collection policy to make it easier for members who don't pay on time?  This is also a common problem.

Will she vote unreasonably against every proposed increase in monthly assessments because she is having financial problems?  Likewise, this is a common problem.

I strongly recommend that you elect board members who are "model citizens" to the extent possible.  Top


NON-OWNER DIRECTORS

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


ELECTION CHALLENGE

Q. 
The management company for our homeowner association and our board of directors recently conducted an election of directors that did not meet the requirements of our bylaws and CC&Rs (Covenants, Conditions and Restrictions). Can an election be challenged by a group of homeowners?

A. 
Yes. An action challenging the validity of an election must be brought within nine months after the election. If no such action is commenced, in the absence of fraud, the election will be presumed valid after nine months from the date of the election. Top


LIABILITY PROTECTION OF BOARD MEMBERS

Q. 
I am considering running for election to the board of directors of my homeowners association. What types of protections are available to protect me against legal liability for negligent acts?

A. 
Under the California Civil Code, a director cannot be held personally liable if the director is acting:

(1) As a volunteer (not paid);

(2) Within the scope of the director's authority;

(3) In good faith;

(4) In the absence of willful, wanton or gross negligence; and

(5) The association has both general liability and directors/officers liability insurance coverage ($500,000 minimum for 100 units or less, or $1,000,000 minimum if over 100 units).

Not withstanding the above, the association may be held liable for negligent acts of the board of directors.

In addition, the California Corporations Code also provides immunity if the director is acting:

(1) In good faith,

(2) In the best interest of the corporation,

(3) In accordance with the business judgment rule, and

(4) As a volunteer (not paid).

Immunities are not absolute. You should contact legal counsel for additional information and obtain comprehensive insurance coverage from a knowledgeable insurance broker. Top


PROHIBITION FROM VOTING

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


PREPARING TO BE A DIRECTOR

Q. 
I was recently elected to the board of directors of my homeowner association in Agoura Hills, and am somewhat at a loss as to how I can best prepare for my responsibilities.  Can you provide me with a list of what I should do?

A. 
I suggest the following:

First, read the following:

  1. Bylaws of the association;
  2. CC&Rs (Covenants, Conditions and Restrictions);
  3. Rules (if applicable);
  4. Contract with management company;
  5. Latest reserve study;
  6. Most recent budget;
  7. Minutes of board meetings for the last twelve months;
  8. Minutes of the last annual meeting of owners (members);
  9. Monthly financial reports for the last twelve months;
  10. Insurance policy(ies) of the association; and
  11. Management company inspection reports for the last twelve months.

Your management company should provide you with any of the items listed that you need.

Ask your management company representative to provide you with an update, along with current legal compliance schedule for associations.  Review their web site for possible helpful information.

Ask you association attorney for an update, if any legal matters are pending.  Review their web site for possible helpful information.  Normally, a law firm will not charge for such an update. Top


TIE VOTE FOR DIRECTORS

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


RAFFLE TO INCREASE VOTER TURNOUT

Q. 
To maximize our chances of obtaining a quorum, is it legally permissible for our condominium association to enter the names of all voters in a raffle for some type of gift?

A. 
Yes. As long as no consideration is given other than voting, you may do so without the need to register the raffle with the office of the Attorney General. Some associations raffle off a credit for one month’s assessment, others offer a gift card. Raffles almost always increase voter participation and the cost of a raffle can be far less than holding a second election.Top


MANAGEMENT COMPANY AS INSPECTOR

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



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


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


REMOVAL OF TREES

Q. 
Our homeowners association in Burbank consists of twelve townhomes. We have a three person board which includes two members who live off-site. The two off-site board members just voted as a majority to remove several beautiful, twenty-five year old trees because they want to save money on tree trimming. The ten members of the association who live on-site are furious about the decision. The trees are being removed within a week. Is there anything we can do?

A. 
If the board of directors has a good reason, in their reasonable judgment, to remove the trees, they may do so.

While I recommend that you present a petition signed by the ten members to your board in order to influence their decision, they may legally exercise their reasonable judgment and remove trees.

This situation illustrates the critical importance of electing board members who will represent the majority of the members. Members of associations should take the subject of board elections very seriously.Top






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