CONNECT 2011 Issue Three

CAI-GRIE’s mission is: To make a positive contribution to the Common Interest Development Community through education and networking.

connect A Publication of the Greater Inland Empire Chapter of CAI

ISSUE three 2011

Pictured: U.S. Treasury Building

20th Annual Golf Tournament More pictures on page 23!

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ISSUE Three 2011 • Connect with grie

connect Table of Contents A Publication of the Greater Inland Empire Chapter of CAI

www.cai-grie.org

OFFICERS Ken Carteron............................................................................. President Pacific Western Bank Robert Riddick...................................................................President-Elect Sunnymead Ranch Planned Community Association Weldon L. Brown.............................................................. Vice-President Weldon L. Brown Company Lana Hamadej, LSM, PCAM. ................................................... Secretary Avalon Management Group

Features 4

It's Budget TIme!

By Jan Hickenbottom, PCAM, CCAM

10

Small Claims: Another Option to Collect Delinquent Assessments

By Lana Hamadej, LSM, PCAM and Kimberly Lilley, CMCA, CIRMS

Kimberly Lilley, CMCA, CIRMS ................................................ Treasurer Berg Insurance Agency, Inc. BOARD DIRECTORS Linda Krebs ..................................................... Flower Lighting & Electric Matt D. Ober, Esq., CCAL ........................Richardson Harman Ober, PC Shelly Risbrudt......................................................Bemus Landscape, Inc. Gina Roldan.........................................................Vista Paint Corporation Kristie Rose, CMCA, AMS, PCAM, CCAM

Transpacific Management Service

Robert Serdoz.............................................. Elite Pest Management, Inc. Alisa Toalson, CMCA, CCAM......Professional Community Management Gwen Wertz.......................................................... CommerceWest Bank Sherry Neal, CMCA, PCAM, CCAM ................................ Past-President Walters Management Chapter Executive Director DJ Conlon, CMCA Editor in Chief Kelly Richardson, Esq., CCAL.....................Richardson Harman Ober, PC Publications Committee Lana Hamadej, LSM, PCAM........................ Avalon Management Group Jan Hickenbottom, PCAM........................First Bank Association Services Kimberly Lilley, CMCA, CIRMS.....................Berg Insurance Agency, Inc. Sherry Neal, CMCA, PCAM, CCAM.................... Walters Management Jude Pisanelli, CMCA............................................... Equity Management Nancy I. Sidoruk, Esq. . ...........................Epsten Grinnell & Howell, APC Jasmine Termaine, Esq...................................... Beaumont Gitlin Tashjian Sheryl Whitaker, AMS.................................. Avalon Management Group DESIGN & PRODUCTION Kristine Gaitan..................Rey Advertising & Design/The Creative Dept.

All articles and paid advertising represent the opinions of authors and advertisers and not necessarily the opinion of either Connect or the Community Associations Institute–Greater Inland Empire Chapter.

Information contained within should not be construed as a recommendation for any course of action regarding financial, legal, accounting or other professional services and should not be relied upon without the consultation of your accountant or attorney.

Connect is an official quarterly publication of Greater Inland Empire Chapter of the Community Associations Institute (CAI–GRIE). The CAI–GRIE Chapter encourages submission of news and articles subject to space limitation and editing. Signed letters to the editor are welcome. All articles submitted for publication become the property of the CAI–GRIE Chapter. Reproduction of articles or columns published permitted with the following acknowledgment: “Reprinted with permission from Connect Magazine, a publication of the Community Associations Institute of Greater Inland Empire Chapter.”

Copyright © 1998–2011 CAI-Greater Inland Empire Chapter.

Advertising, articles or correspondence should be sent to: CAI-GRIE Chapter 5029 La Mart, Suite A • Riverside, CA 92507-5978 (951) 784-8613 / fax (951) 848-9268

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Known Unknowns

By Scott Clements, RS, PRA, CMI

16

Assessment Collection 101

By David May, CMCA, AMS, PCAM

18

What Your Manager Wished You Knew About Reserves

Contributed by Weldon Brown, CPM, Jim McCarthy, Sr., CMCA, PCAM and Dan Saldana

Departments 2

6

20th Annual Golf Tournament President’s Message

By Ken Carteron

8

Editor’s Link

By Kelly Richardson, Esq.

12

A Note from the Executive Director

By DJ Conlon, CMCA

15

Newest PCAM Designees

21

New, Renewed & Rejoined Members

22

2012 Chapter Calendar of Events

23

20th Annual Golf Tournament

The Greater Inland Empire Chapter of CAI hosts educational, business and social events that provide the Chapter’s Business Partners various opportunities to promote their companies’ products and services to Community Association owners and managers serving the Community Association Industry. It is expected that all participants in Chapter events — whether they be educational, business or social — will conduct themselves in a professional manner representative of their business or service organization so as not to detract from the experience of others seeking to benefit from their membership in the Chapter. connect with grie • issue Three 2011

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by Jan Hickenbottom, PCAM, CCAM

It’s Budget Time!

It’s budget time for managers and boards! To be precise, it’s budget time for those associations whose fiscal year ends December 31.

Those associations must distribute to the owners the annual budget for 2012 between November 1 and December 1, 2011.

For the rest of us… well, we’re in budget time too. You see, I believe that budget time starts with the first day of the fiscal year.

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E

ach month, when you review your financial reports, you compare actual expenses to budgeted expenses. Then you look at the bottom line with an eye on your current financial status compared to the budget. You check to see if the monthly reserve allocation was deposited in the reserve account. And, you check to see if any reserve funds were used during the month by comparing the amount of money in the reserve fund to the amount on hand in the previous month.

California requires boards to review the balance sheet and income/ expense comparison reports, bank statements and account reconciliations at least on a quarterly basis. So aren’t we working on the budget all year as we comply with those legal requirements and fulfill our fiduciary duty of watching over the fiscal well-being of the community?

For example, while preparing a proposed budget, the manager checks with utility companies to check for anticipated rate increases, and contacts vendors and contractors to see if their charges are going to increase. An updated reserve summary from the reserve study provider may be needed.

A lot of preparation goes into the process. A manager may put together a realistic budget with a hefty increase to put the association on a better financial path and then one director will say, “We don’t want to raise the assessments in this economy!” and all the planning is shot down.

For some directors, there is always some reason to keep the assessments as low as possible. However, Civil Code 1366 requires the association to levy regular and special assessments sufficient to perform its obligations under the governing documents and state law. Many associations struggle with inadequate operating funds and poorly funded reserves, which can cause a downward spiral of deferred maintenance.

The budget and reserve funding plan set the association’s course. The budget must be approached with the goal of providing enough income for efficient operations and for adequate reserves to meet long-term fiscal responsibilities. When an association loses sight of this goal, the result can be inadequate funds for contracts and services and a shortfall in the operating fund that requires short-term borrowing from the reserves.

It is a mistake to low-ball the budget and then expect the manager to find contractors who will meet your price. Don’t assume that you should always accept the lowest bidder for repair projects. The board must make prudent business decisions based upon complete specifications including warranties, compliance with deadlines and many other considerations in addition to the quality of the materials and the cost of labor.

Patrol services, landscape services, swimming pool and spa maintenance can vary greatly from one company to another. Define the level of service or the maintenance standards that the homeowners expect. A survey of the owners is an excellent way to find out what the owners expect or what they would like to improve. If you prepare a budget without first considering the community’s goals and standards, then the goals

and standards will be determined by the budget. Don’t keep cutting back on services in order to keep the costs down.

The result is dissatisfied owners and unhappy contractors.

A budgeting tool available online from the California Department of Real Estate is the Operating Cost Manual for Homeowner Associations. It is primarily published as a resource for developers who are setting the initial operating and reserve budget for a new development. The information has not been updated since 2006, so the cost estimates in the manual are at least five years old and should be adjusted by obtaining cost estimates from reputable vendors and contractors and referring to your association’s financial history.

Their website is www.dre.ca.gov.

Click on Subdivisions and then the Homeowners Associations tab to find the Operating Cost Manual. It should not be a substitute for the association’s actual expense experience, but it can be a helpful guide as to how to organize a budget.

Preparation of the budget is a yearlong process that includes continuing evaluation of the service levels that are desired by the membership, the financial data assembled as the year progresses and an analysis of the adequacy of the reserve funds being accumulated for the future. Boards adopting unrealistically low budgets will find themselves pinching pennies in order to stay within the budget and future boards will have to compensate for their mistakes. Inadequate budgets can lead to controversies, special assessments or emergency assessments and criticism, or even recall, of the board. Then others who might be potential directors may Continued on page 6 connect with grie • issue Three 2011

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Budget Time...

Continued from page 5 be unwilling to serve because of the association’s overwhelming financial woes. These issues will impact the value of the homes in the association.

A board’s first and most important responsibility is to preserve and protect the investment each of the owners made when they purchased their home. Boards not only have the authority, but also the fiduciary responsibility, to approve a budget that is both adequate and realistic.

PRESIDENT’s

A properly funded and well maintained association is more likely to have proud owners, ease of finding mortgage lenders for refinancing or for potential buyers, willing candidates at election time and general community respect from outside the association.

Jan Hickenbottom, PCAM, CCAM is a Vice President of First Bank in their Newport Beach branch and is a member of the Connect Editorial Committee.

MESSAGE Hello Chapter Members,

We made it through the summer months with more fun and excitement than we have seen in years. Another successful bowling event at Brunswick Classic Lanes was first on the list of success stories. If you missed that event you missed the CAI GRIE going “ALL IN” as we took over the entire bowling alley.

The monthly luncheons and breakfasts were very well Ken Carteron Pacific Western Bank attended and the subject matter was well received with much positive feedback for all of the committees to grow from.

Our Annual Meeting was held on September 15th and we reached quorum with room to spare. This year marked the first year of electronic voting which was very well received and very successful. The efficiency in which it was run by The Inspector of Elections (TIE) was beyond expectations. You can read more about the results on page 12.

To bring the summer to a close the 20th Annual Golf Tournament held at Sierra Lakes was the MOST successful golf event within memory of all chapter members involved. The Committee and our ED, DJ all came together to sell out the course, plus a couple of extra teams just for good measure. A great banquet with good food was enjoyed by everyone and, as always, the extraordinary raffle prizes capped off the day.

I will not steal my President Elect’s “thunder” by going into the specifics of the 2012 planning session that was held on September 27th. I will leave that to him to explain when he takes over the presidential duties and this article. I will say that his vision for this chapter and the goals that he has set for 2012 will continue on the tradition of this chapter that all of us have come to enjoy over the last several years.

I leave you with one final thought and a simple reminder. There are two more educational events – a breakfast and a lunch – plus the Fall “Octoberfest” Billiards Event, before we wrap up 2011 with the Annual TOPS awards. Please remember to register online for these events as the chapter has gone green with our registration process.

Ken Carteron Chapter President

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ISSUE Three 2011 • Connect with grie

GENERAL CONTRACTING RECONSTRUCTION PROJECTS HOMEOWNER ASSOCIATIONS COMMERCIAL PROPERTIES • • • • • •

• • • • • •

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Waterproofing Deck Coatings Roofing Stucco ~ Siding Pools & Spas Maintenance

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Editor’s LINK

Kelly G. Richardson is Co-Founder and Managing Partner of Richardson Harman Ober PC. Mr. Richardson is also the Managing Editor of Connect magazine and Chair of the magazine committee.

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Welcome to our Fall issue. We may be “falling back” with our clocks this time of year, but the Chapter is on the move forward! Did you know that Chapter membership is the highest it has ever been? Yes, as of the most recent report, the Chapter now has 470 members! At the time of writing this, our Executive Director, DJ Conlon, is in Washington D.C. meeting with CAI’s other Executive Directors. Congratulations to her for helping grow this Chapter. Next stop, 500+ members.

The Golf Tournament was a smashing success. Enjoy the photos in this issue. 152 registrants enjoyed Sierra Lakes, another Chapter record. Congratulations to Robert Serdoz and his Golf Committee – and a tip for those who would like to play next year… register early before it sells out!

Do you know of an association which successfully faced a major challenge? Let us know, and we will write it up if you put us in contact.

In this issue of Connect we bring a variety of articles from industry leaders regarding the financial issues facing common interest communities. These have been written by leading attorneys, managers, and accountants and our hope is you will find them of great value.

Don’t forget the Second Annual California Law Forum, this year at the Queen Mary in Long Beach on Oct. 21. In addition to top attorneys from around the state, the keynote speaker is Steve Ford, son of the late President and a successful author and actor in his own right.

The December issue of Connect will emphasize construction and repair issues. If you have an idea for articles within this topic, contact me SOON. Do you have an article you would like to submit, an idea, or a suggestion of how to improve Connect? Contact me by email at KRichardson@RHOpc.com. Thanks for reading!

ISSUE Three 2011 • Connect with grie

connect with grie • issue Three 2011

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Small Claims: Another Option to Collect Delinquent Assessments

By Lana Hamadej, LSM, PCAM & Kimberly Lilley, CMCA, CIRMS

I

n a continuing slow economic recovery, many associations are faced with higher rates of homeowner delinquencies than expected, resulting in cash flow problems. As a result, some associations are paying their bills more slowly, harming vendor relationships or even the association’s ability to contract for needed work.

Such impact could be devastating as common areas maintenance declines, perhaps causing an even further decrease in already declining property values.

Boards should give serious consideration to the use of small claims as a viable option to deal with assessment delinquency problems. The small claims process allows homeowner associations to receive a personal money judgment more quickly and less expensively than other avenues of collections. Small Claims Court is also a highly effective method of collecting outstanding fines assessed against homeowners for violations of Continued on page 12

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ISSUE Three 2011 • Connect with grie

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A note from the Executive Director As most of you already know, the Chapter held its first electronic election this year. I have to say from the CED standpoint it was great. From taking the candidates’ DJ Conlon, CMCA statements to e-blasting Chapter Executive Director out the ballots several times (for those of you that needed some additional encouragement), all the way through e-blasting the election results, the process was handled with great efficiency and ease of operation by The Inspectors of Election. I’m actually looking forward to next year’s election! I would like to ask that more of you participate…this is, afterall, what many of you have trouble with in your own associations…reaching quorum. We had no problem with that and I do attribute it to the ease of electronic communication.

It can take something off your “to do list” in seconds instead of having to dig through a pile of paperwork, take the time to write, fold, seal and stamp an envelope and put it in the mail.

For anyone that wasn’t at the Annual Meeting and maybe didn’t get the e-blast, the following people were elected to serve a three year term on the Chapter Board of Directors from 2012-2014: Weldon Brown, CPM Linda Cooley Dana Mathey Tiffani Reynolds Robert Riddick Alisa Toalson, CMCA, CCAM We have included a 2012 Calendar of Events in this issue (page 22). Please make sure you transfer those dates to Outlook and your cell phones so that you know what’s happening. The 2012 Marketing Plan will be coming out shortly, so keep an eye out for that as well as the “Listing Verification Page” that I send out to verify your company name, address, phone, fax, e-mail and website to print in the 2012 Membership Directory. You will have until November 15, 2011 to verify this information, otherwise it will print as we have it on file. If you don’t receive this verification page in the mail, please contact me at the Chapter office and I will get another one out to you.

All members must be a “member in good standing” by October 31, 2011 in order to be printed in the 2012 Membership Directory. All memberships are verified through National, so please make sure you renew on time!

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ISSUE Three 2011 • Connect with grie

Small Claims...

Continued from page 17 covenants and rules. Associations should review their existing assessment collection policy to make sure it provides adequate language allowing this option for collection efforts. Here is some information to get started: How much can the association sue for? Entities (such as an association) cannot ask for more than $5,000, and can pursue claims of from $2,501 to $5,000 only twice per calendar year. The association can file as many small claims cases as it needs so long as the claims are $2,500 or less.

What will it cost to file the claim? In Riverside County, the fee is based on the amount of your claim and the number of claims filed in the past twelve (12) months: If a claimant has filed twelve (12) or fewer claims in the past twelve (12) months: Amount of Claim

Filing Fee

$0 - $1500

$30

$1,500 - $5,000

$50

If the association has filed more than twelve (12) claims in the past twelve (12) months, the filing fee is $100 for any claim amount.

How long does it take to go to court? Expect to go to court 3-4 months after filing the claim.

What happens at court? First, one should be very well prepared and bring all evidence relative to the claim including: • Copies of the CC&R provision requiring the homeowner to pay assessments; • The association’s assessment collection policy; • An accounting of the homeowner’s account; • Any correspondence to or from the owner related to their account;

• Form SC-104 (proof of service for each person served) and • A copy of the recorded grant deed showing all owners of the property.

The accounting of the debt should separate the amounts due such as assessments, interest, late fees and collection costs. Three copies of each item should be brought to the court, one for the defendant, one for the court and one for you.

Often before the court hears the case, both sides will be asked to meet with a mediator in a final attempt to resolve the case. The manager or director who attends court should have expressly granted authority from the board to settle within some reasonable amount, in case the matter can be resolved before trial. If you are representing the association, you will need to know in advance what compromise if any the board would allow you to make, such as reductions in principal, interest or penalties, or payment terms. If an agreement is reached, the mediator prepares a “stipulation” outlining the agreed terms, which is then signed by both parties, ending the case.

If an agreement is not reached, the case goes before the judge.

Instead of a judge, you may have a commissioner or temporary judge at your hearing. They are vested with the power to hear the case the same as a regular judge. A temporary judge (called a “judge pro tem” or “judge pro tempore”) is usually a volunteer lawyer who occasionally hears and decides cases. You can’t be forced to accept a temporary judge. If you don’t want a temporary judge, you can ask the court to have a judge hear your case, although you may have to come back another day. The judge may either make a decision and issue a ruling from the bench or mail it to you later.

Be prepared to answer questions from the judge with concise, direct

responses. Stick to the subject and keep emotion out of it. Speak to the judge and not directly to the defendant.

What happens once a judgment is obtained? First, it is important to note that only the defendant can appeal the case. The plaintiff (association) cannot appeal the decision, but the defendant has thirty days to appeal. If the association is awarded a judgment and there is no appeal and no satisfaction of the judgment, the association should prepare an “Abstract of Judgment” which must be signed by the judge and then be filed with the County Recorder in the county or counties where the debtor owns property. The judgment, and therefore also the Abstract, remain in effect for ten years, and can be renewed for successive ten year periods.

Be sure to communicate the outcome of the court appearance with the board, manager and any accounting people who should be aware of any arrangements reached in court, especially terms of payment arrangements.

While an association has options when it comes to debt collection, small claims is a relatively inexpensive way to show a delinquent owner that you mean business, and often is just the impetus they need to respond to you (or the official summons), and begin the negotiation process. The sooner you negotiate a payment plan, the sooner the money starts coming into the association to help create that beautiful, well-serviced association with high property values!

The Recognized Authority in Community Association Law

Lana Hamadej, LSM, PCAM, is Vice President of The Avalon Management Group, and serves as Secretary of the Chapter’s Board of Directors. She is a Past President of the Chapter.

Kimberly Lilley, CMCA, CIRMS is the Director of Marketing for Berg Insurance Agency and serves as the President of her association’s board of directors and also the Treasurer of the Chapter Board of Directors.

[Editor’s note: Kimberly Lilley, James McCormick and Dawn Braddy will be part of a panel presenting a discussion on this topic at CAI’s Second Annual California Law Forum on October 21, 2011 at the Queen Mary in Long Beach. See the ad on page 7 for more information].

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KnownUnknowns Planning to Sell Your Unit in the Future?

How is the Association’s Funding Status?

By Scott Clements, RS, PRA, CMI

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D

efense Secretary Donald Rumsfeld coined this oxymoron years ago in reference to war. Unfortunately, it is now relevant and potentially hazardous to the HOA world as well. It has long been established that CID members vote with their wallets, and usually with a short term mind set. This has led to a staggering number of underfunded HOAs in California, and the nation.

This has largely gone unnoticed, until now.

The Federal Government, through HUD, FHA, VA, Fannie Mae, Freddie Mac, etc., has largely controlled the market for residential mortgages in common interest developments throughout the U.S. As such, the underwriting world has adhered to their criteria – basically, 10-20% of the operating budget has to be designated for reserves. This is questionable on two fronts; 1) unclear relevance to the specific HOA; and 2) contribution rate does not determine risk of default, actual balances do. Using any fixed percent of operating budget is an arbitrary number, and will be inaccurate in most circumstances. Some contribution rates should be less,

others more, than any predetermined number. It all depends on the particulars of the HOA. More importantly, how much money an HOA actually has will determine its need to pass special assessments on the members, thereby impacting the potential of ownership to default on the mortgage. While how much an HOA is currently saving is important, it pales in comparison to the importance of actual cash balances.

As you have probably heard, as of print deadline, the U.S. Government has spent $153 billion of my money – I’m sure some it is yours too – to maintain the residential mortgage market. Due to this they intend to reduce and/ or eliminate their presence in the residential mortgage market. This has created the “known unknown.”

We know the market, and thus the underwriting criteria, for residential mortgages will change significantly over the next few years. The specifics of that are still unknown.

However, in 2009, Government actuaries at FHA recommended underwriting criteria be adjusted to require an HOA to maintain a 60% funded status in their reserves to qualify.

That was bantered about in Washington, D.C. for a few months, and then essentially tabled for political reasons. As private capital expands to take over the mortgage industry, do you think banks, lending their own money, will have more, or less, stringent standards when setting their underwriting criteria, than the current Government requirements, that the bank actuaries know lost the Government $153 billion? HOAs which allow significant underfunding of reserves may find it difficult to sell individual units, as few buyers pay cash for real estate. Could this condition force members to stay in homes they wish to leave? This problem could result in a form of debtors prison we call (you guessed it) “Reserve Study Prison.”

951.698.8511

www.waltersmanagement.com Murrieta • San Diego • Chula Vista • Carlsbad

The Greater Inland Empire Chapter would like to congratulate our newest PCAM designees:

Lisa Locke, CMCA, AMS, PCAM Equity Management

Photo Not Available

Jon Sabo, CMCA, AMS, PCAM Spring Valley Lakes Association

Scott Clements is Chief Operation Officer of Reserve Studies, Inc.

Betty Roth, CMCA, AMS, PCAM, CCAM The Avalon Management Group Sunnymead Ranch Planned Community Association

Vanessa Wuestewald, CMCA, AMS, PCAM Empire Management Group, LLC

The Greater Inland Empire Chapter is the host for the 2012 PCAM Case Study. For more information, contact the Chapter office. connect with grie • issue Three 2011

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Assessment Collection 101

By David May, CMCA, AMS, PCAM

F

oreclosures have hit epic proportions throughout the country and there probably isn’t a homeowners association (HOA) that has not been affected in one way or another. For whatever reason, be it loss of a job or some other major change in life, some homeowners find themselves in a position that does not allow them to keep their HOA assessments current.

In those cases where the homeowner has not responded to the HOA’s usual collection letters, the HOA must then consider some of the more forceful measures available to them: Judicial Foreclosure, Nonjudicial Foreclosure, and Small Claims Court.

Let’s first take a look at the definitions of each of these options as defined by The Real Estate Dictionary: Judicial Foreclosure – Foreclosure through court action rather than by a power of sale.

Nonjudicial Foreclosure – Sale by a trustee under a deed of trust, or mortgagee under a power of sale of a mortgage. There is no court (judicial) proceeding.

Small Claims Court – A court having limited jurisdiction to hear cases up to a statutory limit. Cases are heard quickly, attorneys are usually not allowed unless a party to the action, and most cases are decided on fairness rather than fine legal points. By reading these definitions you can see that there are distinctive differences between each of the options. So let’s take

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ISSUE Three 2011 • Connect with grie

a look at some of the advantages and disadvantages of each of them as they pertain to the HOA.

Judicial Foreclosure This type of foreclosure process preserves the HOAs options by allowing both a money judgment of personal liability against the owner and action against the property if there is equity. If there is no equity in the property, the money judgment gives the HOA a second way of pursuing the debt.

Advantages The HOA can potentially collect from both the sale of the property and for a deficiency money judgment (the difference between what is owed and what is collected) if there is not enough equity in the property to cover the balance owed Deficiency money judgments against the defendant may be enforced by actions including wage garnishment, confiscation of rent or bank accounts, or sale of defendant’s personal property.

Disadvantages Expensive process with uncertain outcome.

Deficiency money judgments may be uncollectible.

Requires an attorney and court action.

No expedited time frame.

One year right of redemption after court-ordered foreclosure sale of residence.

NonJudicial Foreclosure The Nonjudicial Foreclosure process is the most common process used by HOAs today to enforce the collection process.

Advantages

Ultimately the HOA must consider whether it is worth “throwing good money after bad” for any of these potential solutions. That is going to be a business decision that the board must make. Which course of action the board ultimately takes should be determined by the HOA’s Assessment Collection Policy, advice from their attorney, and good old common sense!

David May, CMCA, AMS, PCAM is the CEO of CID Property Management, Inc., located in Murrieta, CA.

Does not require attorneys or a court action.

Expedited time frame as short as 111 days.

Quality Products & Service

Less expensive compared to Judicial Foreclosure.

Competitively Priced

Shorter 90-day right of redemption period.

Disadvantages If no equity in the property, foreclosure is of no benefit to HOA.

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Deficiency money judgment not available, so there is no recourse for the HOA to recover any money owed beyond the equity in the property.

Cannot go to Small Claims Court to recover any other money owed from the homeowner if Nonjudicial Foreclosure is chosen.

Small Claims Court This process does not provide for a long-term solution to a homeowner that consistently owes the HOA money.

While it is fairly simple to get a judgment against a homeowner, it is only for a certain amount owed at a certain time.

Advantages

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Easy to file a claim with the court.

The amount sued for can include HOA dues as well as fines and penalties.

Very low cost to file, yet can sue for amounts up to $5,000.

Attorneys not allowed to participate.

Very quick process from filing to final decision Can garnish wages, seize bank accounts or other assets.

Disadvantages Uncertain outcome – ruling by judge (or volunteer “pro tem”) could go either way.

Can only pursue $5,000 twice per year, the third and following claims each year limited to $2,500.

Still have to enforce the judgment.

Attorney representation is not allowed, so governing documents or legal issues must be addressed by the client, not attorney.

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What Your Manager Wished You Knew About Reserves [Editor’s Note: Connect contacted three of the Chapter’s leading association management professionals to ask them what they would like Chapter Associations to know regarding the importance of the association reserve fund. Below are the submittals from Weldon Brown, CPM, of Weldon L. Brown Company; Jim McCarthy, Sr., CMCA, PCAM, of Condominium Management Services and Dan Saldana of Haven Management.]

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ISSUE Three 2011 • Connect with grie

From Weldon Brown, CPM Q. What are Association Maintenance Assessments and What Are They Used For? A. California Civil Code 1366 requires the association to assess…it further states that “(a) except as provided in this section, the association shall levy regular and special assessments sufficient to perform its obligations under the governing document and this title…that means the association must adopt budgets with assessment levels to sufficiently meet its financial obligations to cover the current monthly operating costs and also fund the reserve replacement fund.”

Q. What are Reserves?

A. Reserves are monies set aside to pay for the long-term capital repair, replacement, and restoration of the major components for which the association has the obligation and maintenance responsibility. Reserves are depreciation represented in the form of cash. The fund is equity and adds to the value of your real estate – every association member owns their fractional interest in this fund.

Continued on page 20

From Jim McCarthy, Sr., CMCA, PCAM Reserve funding is the building block for the association’s future. Beginning with day one of a new community’s existence, the primary elements of the community for which the association exists, begin to deteriorate. The original budget contains a reserve allocation sheet showing the projected monies that will be necessary when each major component’s use is exhausted. It is very important that boards of directors realize that they begin planning for the future from day one. This is not always consistent from one board to the next board of directors as they do not feel the need to pay for future repairs that may or may not affect them. They must keep in mind that they have a fiduciary responsibility as directors of their corporation to make sure that it is properly funded, not only today, but in the years to come. They must also realize that as the community ages, the maintenance will increase exponentially, particularly if there is no preventative maintenance done year Continued on page 20

From Dan Saldana, Haven Management One of the foremost responsibilities that a board of directors has to its membership is to adequately budget to preserve and maintain the common area. Failure to do so affects property values far more than the cost of an increased assessment. This responsibility is often tempered by membership and individual directors who are convinced that assessments are already too high. But the assessments are too high in comparison to what? Are they too high in comparison to the XYZ association that has less common space, more members, well-funded reserves and less maintenance obligations? It would require an in-depth analysis of historical costs, funding requirements, collection rates, common area components and a host of other factors not generally available for statistical compilation. Anyone can reduce assessments. It’s simple; just reduce the service level expectations. Not recommended - but each owner can always take a turn at cutting the lawn.

The budget for a community is based in large part on the board of directors’ goals and objectives. These are indeed challenging times. Assessments continue to increase as Continued on page 20

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From Weldon Brown, CPM Continued from page 19

From Jim McCarthy, Sr., CMCA, PCAM Continued from page 19

From Dan Saldana Continued from page 19

These are expenses that typically occur annually or less frequently and which must be budgeted for in advance so that the necessary funds are available when they are needed.

to year. Having a reserve study done every three (3) years allows the board to gauge where they are with respect to their ability to fund future needs. Failure to plan out your reserves is planning to fail.

Boards must realize that owners know it is vital that the association be able to maintain its common elements. More and more the lending institutions are reviewing the associations’ ability to maintain the units which are essentially the collateral for the loan to the homeowner to make the purchase of their unit.

Establishing realistic maintenance assessment payments which include contributions to reserves is the purest form of self taxation available to us in this country. ✦

delinquency rates continue to rise.

The pressure to control costs is evident in many decisions that are being made. Many communities are taking a hard look at their reserve study components and the remaining amount of time available before they should be replaced. Where will those funds come from and what are the priorities?

The very first step is to understand your financial report. Is the board comfortable in reading and understanding the monthly financial report? Are the expenses staying within the budgeted amount for the year? Is the income covering the expenses or has the delinquency rate exceeded what has been forecasted.

Unless a board of directors can easily read and understand where the community is financially, it is literally impossible to make the tough decisions when it comes to funding the reserve accounts. The membership looks to the board of directors to be good stewards of the resources committed to the community. With that expectation, is the responsibility for the board to understand where and how those assessments are being spent.

It is only when a board understands the immediate requirements that it can plan for funding the reserve account. All studies have a list of the components and their expected useful life. There are no surprises here, because the membership also gets an annual summary. Failing to plan is indeed a plan to fail as the options become dire when the useful remaining life of those components come to an end. Ultimately the board may face postponing the needed work or phasing projects because funds are not available. In urgent circumstances, special assessment funding may be needed. To adequately plan and make decisions, it starts with understanding your current financial situation. ✦

Q. What is a Reserve Study?

A. A reserve study is a budgeting tool (in essence a budget in itself) based on the art and science of anticipating and preparing for the major common area repair and capital replacement expenses an association will face.

Boards of directors are mandated in their fiduciary capacity as trustees of the multimillion dollar non-profit corporation to act prudently by funding reserves. Boards should know that when told by management and other industry professionals about their responsibility to adopt realistic budgets and they fail to do so – the individual directors could open themselves up to personal liability for failing to meet the “Business Judgment Rule.” ✦

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ISSUE Three 2011 • Connect with grie

New, Renewed & Rejoined Members June 1 through August 31, 2011

NEW MEMBERS

Alliance Environmental Group, Inc. Joe McLean

Iron Horse Ridge Community Association Wayne Baxter

Verizon Enhanced Communities Jerry Wilder

Eryn Sisk, CMCA

AMS Paving, Inc. Liz Williams

John R. Sinner Insurance Agency, Inc. John Sinner

Vista Paint Corporation Blair Loubet

Association Management & Support Services, Inc. Aza Ingraham, CMCA

Association Reserves- Orange County, LLC Michael Nash

Keystone Pacific Property Management Cary Treff Serina Washington

Walters Management Company John Thorpe, AMS, PCAM

Avalon Management Group, Inc. Matthew Amos Courtney Kisner

Avalon Management Group, Inc. Lana Hamadej, LSM, PCAM Lori Palomo, AMS Sheryl Whitaker, AMS

Angela Conlon

CommerceWest Bank, N.A. Gwen Wertz Empire Management Group, LLC Lisa Cansler ENDURA Painting Corporation Angel Fuerte Gerard Roofing Technologies Steve Kelchlin Heaviland Enterprises, Inc. Steven Anderson Heritage Village Master Community Association Nellavan Jeglum Professional Community Management Jeremy Wilson, CMCA, AMS Ramona Village Homeowners Association Clare Kruger Rancho La Vita Homeowners Association Ron Ecceles Reydine Eccles Redhawk Engineering, Inc. Don Weeks RGS Services R.J. Villagomez Rosetta Canyon Community Association Linda Cooley

B & B General Contractors Dora Brady California West Patrol Bill Hunt Cannon Management Company Peter Densmore, CMCA Canyon Lake Property Owners Association Paul Johnson, CMCA, AMS Carriage Hills Vic Allende Greg Machnik Ken Maziol

Euclid Management Company Glennon Gray, PCAM Dana Mathey

Royal Promotions Duke Conlon

Fontaine Weatherproofing, Inc. Jim Murray

The Farm Property Owners Association Thesesa Doss

Garland Restoration, Inc. Angela Weiss

RENEWED Accurate Termite & Pest Control Laura Terpack

Glendora Springs Margery Cosgrove Kathi Preuit

Action Property Management, Inc. Marianne Simek, PCAM

Gothic Grounds Management, Inc. Tad Black

Adams Kessler, PLC Adrian Adams

Hickey & Petchul, LLP David Hickey

Gold Coast Enterprises Terry Smith, CMCA, AMS

Palo Verde Landscape Management Co. Antoinette Stratton Pilot Painting & Construction, Inc. Allison Gilkey

Professional Community Management, Inc. Alisa Toalson, CMCA Donny Disbro

Rosewood Villa, Inc. Evelyn Burke

Euclid Management Company Jeri Mupo

Neighborhood Association Management, Inc. Dee Lachner

Cornerstone Commercial & Personal Insurance Services Phil Hakopian

REJOINED Betty Jane Renko

National Cooperative Bank Jared Tunnell

Prescott Companies Gloria Todisco Jessica Williams

Elite Community Management Timothy McLean, CMCA, AMS

Wolf, Rifkin, Shapiro, Schulman & Rabkin, LLP Daniel Shapiro

LaBarre/Oksnee Insurance Agency, Inc. Zach Miller

Condominium Management Services Jim McCarthy, Jr., CMCA, AMS Michael McCarthy, CMCA, AMS

Creekside Village East Master Irene Chisholm Jean Gambill Donald Layton Charles Martin Adam Przybylowski John Rocha

Westmar Property Management, Inc Company President

La Paloma at Corona Ranch Nancy Foreman Myra Quinn JoAnn Sowden

HomeTeam Pest Defense Ian Pak Palacio De Oro South Association Dustin Christensen Melody Kendall Stephanie Steele Park Granada Homeowner Association Christina Callanan William Gavitt Robert Grant

Reserve Data Analysis, California LLC Randi Miller, RS

Paul Davis Restoration, Inland Empire Eli Shapiro Professional Community Management Jason Kratz

Richardson Harman Ober, PC Kelly Richardson, Esq.

ProTec Building Services J. David Rauch

Rose Paving Company David Cohen S.B.S. Lien Services Mitch Willet S & L Association Management, Inc. Khatidja-Rosy Amlani, AMS, PCAM

Seven Hills Drive Homeowners Association Sharon Cooley DeLoise King Joyce Martin Robert Skelley Janyce Wutzke

Seabreeze Patio Furniture, Inc Al Lehrer The Greens at Indian Hills Bob Chambers Anne Stephens Timothy Cline Insurance Agency, Inc. Timothy Cline, CIRMS Tri-County Lighting Services, Inc. Vicki Wood U.S. Bank Dori Kagan, CMCA

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2012 Calendar of Events JANUARY 17 Mini Trade Luncheon 20 Reign Hockey Game 30 PCAM Reception 24 Board Meeting FEBRUARY 9-10 M-203 PMDP Course 16 Breakfast 25 BFC 28 Board Meeting MARCH 9 Spring Billiards 22 Mini Trade Luncheon 27 Board Meeting APRIL 6 16 19 21 24

IE Olympics CA Legislative Day Breakfast Essentials Board Meeting

MAY 2-4

11 22 24

National Conference Las Vegas CLAC Wine Night Board Meeting Mini Trade Luncheon

JUNE 9 Monte Carlo Night 21 Breakfast 26 Board Meeting

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ISSUE Three 2011 • Connect with grie

JULY 12-14 PCAM Case Study 19 Mini Trade Luncheon 24 Board Meeting AUGUST 3 Bowling Tournament 16 Breakfast 25 BFC 28 Board Meeting SEPTEMBER 11 Mini Trade Annual Mtg Luncheon 21 Golf Tournament 25 Board Meeting OCTOBER 12 Fall Billiards 16 Breakfast 19 Legal Forum CA Communities 23 Board Meeting/2013 Planning NOVEMBER 3 Essentials 15 Mini Trade Luncheon 27 DARK – No Board Meeting DECEMBER 13 TOPS/Holiday Board Meeting

20th Annual Golf Tournament

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