2013 Issue 1

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 one 2013

BANKING & FINANCE Is Your Association Shopping For A Loan?

Fidelity/Crime – What’s In A Name?

The Association as a Property Owner – Rights And Liabilities

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

www.cai-grie.org

OFFICERS Lana Hamadej, LSM, PCAM...................................................... President Avalon Management Group, AAMC Kimberly Lilley, CMCA, CIRMS..........................................President-Elect Berg Insurance Agency, Inc. Matt D. Ober, Esq., CCAL ............................................... Vice-President Richardson Harman Ober, PC Tiffani Reynolds......................................................................... Secretary Rodent Pest Technologies, Inc. Nick Mokhlessin......................................................................... Treasurer ValleyCrest Landscape Maintenance Robert Riddick, CMCA...................................................... Past-President Sunnymead Ranch Planned Community Association

Features 4 The Importance of Relationship Banking

By Dave Luna, Shelley Davis & Rosalio Ulloa

7 Fidelity Crime: What’s in a Name?

By Kimberly Lilley, CMCA, CIRMS

10 Banking & Finance

BOARD DIRECTORS Weldon L. Brown . ...................................... Weldon L. Brown Company

23 A Wake-Up Call About Online Fraud

By Mark Reider

25 How To Pay For That Big Project

By Steve Schonwit

30 Is Your Association Shopping for a Loan?

By Geri Kennedy & Jan Hickenbottom

By M. Tom Carrasco

Linda Cooley.............................Rosetta Canyon Community Association Dori Kagan, CMCA, CCAM-Emeritus.......................Pacific Premier Bank Linda Krebs ..................................................... Flower Lighting & Electric Dana Mathey, CMCA, AMS, PCAM....... Euclid Management Company Shelly Risbrudt............................................Pilot Painting & Construction

11 The Association as a Property Owner: Rights and Liabilities

By Sheeba S. Yaqoot, Esq.

Kristie Rose, CMCA, AMS, PCAM, CCAM.Merit Property Management Alisa Toalson, CMCA, AMS, CCAM

Professional Community Management

Chapter Executive Director DJ Conlon, CMCA

13 In the Spotlight: The PCAM Experience 14 Legislative Support Committee Says... Thank You!

Editor in Chief Betty Roth, CMCA, AMS, PCAM...Avalon Management Group, AAMC Publications Committee Tom Carrasco . ..Environmental-Concepts Landscape Management, Inc. Lana Hamadej, LSM, PCAM ...................... Avalon Management Group

9 Editor’s Link

By Betty Roth, CMCA, AMS, PCAM

18 Save Your Community, Protect Its Funds

29 20th Annual Legislative Day at the Capitol

By Brian D. Moreno, Esq.

20 Evaluating Banks for the Services They Offer

Kimberly Lilley, CMCA, CIRMS............................ Berg Insurance Agency

By Gwen Wertz

Robert Riddick, CMCA.......................................Sunnymead Ranch PCA

By Lana Hamadej, LSM, PCAM

16 2012 TOPS Award Winners

Cang Le, Esq. . ........................................ Fiore Racobs & Powers, A PLC

Jan Hickenbottom, PCAM, CCAM . ........................................ First Bank

6 President’s Message

28 Interview with CAI-CLAC Chair Pamela Voit

Administrative assistant Christy Hilditch

Departments

By the CAI-CLAC Public Relations Committee

Mahendra Sami .................................................................... Union Bank Nancy I. Sidoruk, Esq. . ...........................Epsten Grinnell & Howell, APC Jasmine Fisher, Esq............................................ Beaumont Gitlin Tashjian Sheeba Yaqoot, Esq. ................................ Fiore Racobs & Powers A PLC DESIGN & PRODUCTION

The Greater Inland Empire Chapter of CAI hosts educational, business

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 © 1998–2013 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

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.

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By Dave Luna, Shelley Davis & Rosalio Ulloa

The Importance of Relationship Banking 4 | ISSUE ONE 2013 • Connect with grie

B

anks are on every corner in your neighborhood, but how do you choose the right bank for your property management company or homeowners association? With today’s advanced technology, (i.e. remote deposit, ACH, online banking, lockbox), having a branch on your corner may not be the most critical component when making your final decision.

First: Consider what is important to your company or association. Is quality of service, convenience and lowcost most important? Or is finding a bank interested in developing a long-term relationship with good value your primary objective?

Second: Determine if your prospective bank understands the property management/HOA industry.

How long has the bank worked with property management/HOA companies? Does the bank have the products, services and resources to meet your needs? Is the bank willing to provide a list of references along with contact information so you can follow up with a phone call to confirm what they are telling you?

Third: Does the relationship manager truly understand the many challenges and opportunities your industry faces? Early on in the relationship, the right banker will ask you several targeted questions to ensure he/ she understands your goals and objectives. During the “interview,” is the banker listening? Taking notes?

Correctly summarizing what you’ve discussed? Only then are they able to develop and customize solutions to help your company be more efficient and effective. Ask the banker to provide recent examples of how they helped a company similar to yours overcome some of your real-life challenges and the time it took to resolve them.

It is also important to ask the banker how long they have been in the industry and at that financial institution.

While industry knowledge is important, so too is longevity and loyalty to a company. Relationships take some time to develop and you want to be sure your banker is committed to that organization for the foreseeable future.

Fourth: Once you’ve determined you would like to move forward, determining the accessibility of your relationship manager is important. If your relationship manager is unavailable, is there a support team available?

Have you met other key members of the team, do they understand your business needs, and do you have contact information for all of them? Providing an 800 number to a call center may be an acceptable back-up plan, however, having relationships with key members of your banking

team will ensure your needs are addressed timely. More importantly, the banking team is familiar with the many details of your banking relationship and can provide the most effective solutions. Most likely, a call center cannot.

Finally: Determine the bank's interest in helping your company succeed. Having a true relationship with your bank means their ability to anticipate your needs vs. react to them. A banker who is truly interested will be in frequent contact and take ownership of your satisfaction.

They will routinely connect with you to ensure your needs are being met while simultaneously help you plan for the future.

This is especially important when your company is looking for financing. While all banks are in the business of lending, lending to the HOA industry can be very complicated and requires the knowledge and expertise of a qualified banker. Make sure your relationship manager is familiar with the bank’s lending criteria and can provide you with quick and efficient options for your funding needs. Determine what their loan appetite is for your industry and ask what types of financing they have provided within the last 6 or 12 months.

As the relationship with your bank develops, so too will the relationship with your banker. Ensuring you have done your due diligence early on will pay huge dividends. Many banks say they are looking to nurture and build long-term relationships and there are hundreds of knowledgeable and experienced bankers. The key is finding BOTH in the same organization.

David Luna, Vice President / Senior Relationship Manager, Pacific Western Bank, Glendora Branch

Shelly Davis, Vice President /Relationship Manager, Pacific Western Bank, Corona Branch

Rosalio Ulloa, Vice President /Senior Relationship Manager, Pacific Western Bank, Claremont Branch

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PRESIDENT’s MESSAGE

Greetings and welcome to the first issue of the 2013 Connect Magazine. I am so excited to be able to serve as the 2013 Chapter Lana Hamadej, LSM, PCAM President, and as others before me have stated, my predecessors have left huge shoes to fill. Nevertheless, I feel confident that this will be a great year. After all, our chapter has the best volunteers ever and I know that there are more of you out there who would like to participate in the happenings of our chapter. I encourage you to do so.

The theme I selected is “Cruise CAI – Sail to Success.” That theme

was selected based on my personal enjoyment of the cruise concept where everything that I look for on a vacation is available to me. CAI parallels that concept by offering its members everything we need to be successful, whether a business partner, Community Association Volunteer Leader (CAVL) or manager.

2013 promises to be exciting with worthwhile educational offerings and fun happenings scheduled. January brought us three very successful, wellattended events. First, thanks to the Business Partner Committee for the Ontario Reign hockey game held on January 4. This event sold out quickly and thanks to the Business Partner Committee (and the Reign), it was great fun.

The Manager Committee

coordinated the January Mini Trade Show and Luncheon Program entitled “This is Professionally Offensive.”

Our speaker, Debra Warren, PCAM® took us through the Professional Manager Code of Ethics by presenting various scenarios followed with “what would you do” solutions. Thanks again to the Manager Committee for this well-timed and informative session. This is only a sampling of the type of educational offerings presented by our chapter.

On January 31, we acknowledged our chapter’s two newest PCAMs, Dana Mathey and Liz Kemme with a reception at the Mission Inn. Achieving the PCAM® designation demonstrates their commitment to this industry. Congratulations Dana and Liz. This issue of the Connect Magazine provides our readers with educational information about banking and finance, topics that are germane and relevant. Thank you to our great Magazine Committee for their hard work in gathering and authoring this magazine.

In closing, I want to remind everyone that CAI-GRIE offers countless opportunities for education, networking and fun. January gave us a taste of all that CAI-GRIE offers, education, networking and fun. To benefit from your membership, you must participate. I look forward to seeing all of you at a future event.

Please be certain to check out our chapter website cai-grie.org for a full calendar of 2013 events. As your 2013 President, please don’t hesitate to let myself or any member of the board know how we can be of assistance to you. Thanks for this great opportunity!

Best Regards, Lana Hamadej, LSM®, PCAM® 6 | ISSUE ONE 2013 • Connect with grie

Fidelity/Crime: What’s in a Name??

By Kimberly Lilley, CMCA, CIRMS

G

oing through your association’s paperwork you may have found reference to a Fidelity Bond. Or maybe it was Crime coverage? Or Fidelity Insurance or Employee Dishonesty… Geesh! Is it so complicated that they have to give it all of these different names?

Don’t let the nomenclature get you down. This coverage is in place to make the association whole again if someone decided that Jamaica looks lovely this time of year and the reserve account has just enough money in it to fund the trip. As we all know, maintaining an association without reserve funds is practically impossible.

This coverage helps prevent a rather dramatic assessment to the members if association funds are stolen.

The age-old question is: how much should we be insured for? When it comes to insuring physical property like a building, a building cost estimator is

used, and it makes practical sense – you insure the building for how much it would cost in that city at that time to rebuild the structure. It is a number that is directly linked to the item insured.

Fidelity/Crime/Employee Dishonesty coverage is also directly linked to what it is insuring. It is intended to replace money that is lost due to a dishonest act, so the money becomes the direct link – the “property” that needs insuring.

But how to calculate the amount to insure requires that you refer to your governing documents. In an association’s Covenants, Conditions and Restrictions (CC&Rs), the insurance section often includes a formula for what is required to be covered under the Fidelity coverage. The document may state, for example, that the limit of insurance on the Fidelity Bond needs to be at least equal to 150% of annual operating expenses, plus reserves.

If, however, your documents

are silent, we need to turn to the Federal Government regulations.

Most government lending institutions require that associations with over 20 units carry Fidelity insurance. The Federal Housing Administration (FHA), which is now backing an estimated 30% of loans, requires a limit of three months of aggregate assessments for all units plus reserves. Between the governing documents and the Federal Government regulations, be sure you meet the higher, more conservative requirement.

If you think about it, it makes sense: you want to be able to replace the reserves if they’re stolen. Also, sometimes it takes a few months for the treasurer to notice that something is wrong, so insuring three months worth of assessments is a good idea, too.

After determining how much you will need to insure, you will want to make sure the appropriate people Continued on page 8 connect with grie • issue ONE 2013

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Fidelity/Crime Continued from page 7

are covered under the policy. Most policies will include board members automatically, but some will not. With an “employee dishonesty” policy, some carriers do not consider unpaid board members to be “employees.” Make sure that the definition of the insured includes your board members.

What about the property manager of the association?

If they aren’t paid directly by the association, they may be considered contractors and not employees. Make sure that the language of the policy is expanded to include the managing agent for the association. This is typically accomplished with an additional insured endorsement.

Getting confirmation in writing (a copy of the actual policy language or endorsement) from your broker or agent is important.

There are many safeguards that can be put in place to help reduce the possibility of a board member or manager stealing money from the association. Here are a few suggestions: • Require the signature of two board members on checks • Make sure checks are signed manually (not rubberstamped) • Confirm supporting documentation for payment (invoices, etc.)

• Keep investments in the association’s name (not individual board members)

• Prohibit the writing of checks to “cash” Also keep an eye out for checks that seem out of place.

Perhaps payable to a contractor you have never seen performing work on the association. One of the more popular fraud tactics is making payments to a company that doesn’t exist (for work that didn’t happen).

While these suggestions are an excellent way of making it more difficult for a board member or manager to take money from the association, it does not deter them entirely.

For example, while it is good that at least two people are informed that money is being removed from the reserve account, if someone is willing to steal money from the association, it’s a good bet they are also willing to forge a signature to achieve that end.

So, knowing that we live in a world where 80% of money stolen from a company is stolen by an employee, it doesn’t matter what it is called, having a Fidelity/Crime/Employee Dishonesty policy in place is an important part of protecting your association from loss.

Kimberly Lilley, CMCA, CIRMS, is the Director of Marketing for Berg Insurance Agency and can be contacted at Kimberly@BergInsurance.com or at www.BergInsurance.com.

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Stay up to date with our “real time,” online status reports. ATCACG.COM 8 | ISSUE ONE 2013 • Connect with grie

EDITOR’s LINK This is such an unexpected pleasure. A year as the editor of this fine magazine just seemed to fly by. There are not too many things that you can say that about. It has been a wonderful experience so far and I am privileged Betty Roth to be asked to stay in this position CMCA, AMS, PCAM for another year. The majority of the credit goes to the incredible committee which I have the honor to work closely with. They are so selfless with their time and effort and I don’t know what I would do without them. I also want to thank DJ Conlon, the chapter’s Executive Director. Her tireless efforts to make sure that each article is proofread and that the magazine gets to the membership in a timely manner makes my job so much easier.

We had our TOPS awards in December. It was a wonderful event. The Business Partners put on a rockin’ Hockey Game Event in January, starring the Ontario Reign.

We are looking forward to the CLAC Legislative Day at the Capitol in April as well as several informative mini trade shows and luncheons.

This issue presents a series of informative articles focused on banking and finance. They touch on online fraud; shopping for a loan; fidelity/crime; the association as a property owner; the importance of relationship banking and protecting your funds.

We hope you will find the information in this issue of Connect useful and we appreciate your continued support of the GRIE-Chapter and CAI. The topic for our next issue is Common Area Maintenance. We will be bringing you articles on drought tolerant planting; pool and spa maintenance and unique maintenance concerns. I think that this will be a very interesting issue of the magazine.

We would like your input as well. The deadline for submitting articles for the next issue is May 1st. It is very rewarding to have an article published and can also serve for points in achieving your accreditations. If you are interested in submitting an article, our policy and guidelines are available on the chapter website or feel free to email me at manager@mysunnymead.com and I will be happy to send you a copy.

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By M. Tom Carrasco, Certified Arborist, PCA, QAL

Banking and Finance

F

or the past six years, our great country has been in one of the greatest financial downturns that we have ever seen. Banking and finance has been both our biggest burden and our biggest asset. During these times, cash flow is king. Starting from the ground up, the key to business is choosing to deal with customers that have both the finances and integrity to pay their bills on a timely basis. At the other end of the spectrum, making sure you can pay yours in a timely manner is just as important. As my father told me when I was only 10 years old, "Your credit rating is even more important than cash. It can get you the cash you need."

Business is a detailed dance of cash in and cash out, hopefully leaving more in than out. There are three action items that are the keys to success. Budgeting, sticking to the budget, and access to cash. This is extremely important if you are growing at a fast pace. The first two, budgeting and sticking to the budget, are self explanatory to a point. The key here, especially when you are growing, is to understand that if sales grow faster than anticipated, you have to amend the budget. This has to be done swiftly while keeping in mind that the input cost percentages must be kept the same compared to revenue to achieve the desired, and budgeted profit margin. In regard to access to cash, I have already touched upon choosing, yes choosing, the right customers to deal with. When you choose the right customers, you can create a mutually beneficial relationship that can help with cash flow. If your focus is great quality work, and you are helping your customers reach their goals, they will more times than not, pay you at terms or

10 | ISSUE ONE 2013 • Connect with grie

sometimes sooner. When you have created this relationship and are holding up your end of the bargain, they too will want to help you succeed. On the accounts payable side, choosing the right vendors to purchase from is also important. By paying on time, or better whenever possible, you will create trust with your vendors. It improves your "credit rating.” When you have shown that you can be trustworthy, asking for longer terms can help your cash flow. This can help you by keeping cash “in house” longer, but also must be managed continually to keep not only your “credit rating” high, but to keep from getting over-extended. Many companies also use lines of credit from banks or third parties to help them if their customers are slow to pay or they need to purchase capital as they grow. This also needs to be managed closely and paid down regularly to keep fees and debt at a minimum. In banking and finance, as in life, the key to success is sticking to the plan, creating relationships, and managing both very closely.

Tom Carrasco is the President/CEO at Environmental Concepts Landscape Management Inc. Tom received a B.S in Landscape Design from Virginia Tech, is a Certified Arborist, Licensed Pest Control Advisor though the State of California and a Licensed Qualified Applicator.

By Sheba S. Yaqoot, Esq.

The Association as a Property Owner: Rights and Liabilities

A

ssociations have the option of foreclosing on a delinquent homeowner’s property. What happens when an association obtains title to the property at a foreclosure sale? Essentially, the association becomes the owner of the property and has all of the rights and responsibilities of a property owner.

Does the association automatically take title to the property at a foreclosure sale? If the association is the highest bidder at a non-judicial foreclosure sale, the association takes title subject to a 90 day right of redemption (Civil Code §1367.4 (c)(4); Code of Civil Procedure §729.035). If the association is the highest bidder at a judicial foreclosure sale, and the proceeds of the sale are sufficient to satisfy the judgment, the redemption period is 90 days (Code of Civil Procedure §729.030(a)). If the proceeds from the judicial foreclosure sale are not sufficient

to satisfy the judgment amount, the redemption period is one year after the sale (Code of Civil Procedure §729.030(b)). The redemption period gives the foreclosed owner an opportunity to redeem the property by paying the delinquent amounts.

What if the prior owner is still living there? Once the redemption period is over, the association officially becomes the owner of the property.

However, the prior homeowner may still be living in the property. As the new owner of the property, the association can initiate an unlawful detainer action to evict the prior owner and any other occupant from the property What happens to the senior mortgages? On the plus side, an association is not personally obligated to pay the prior owner’s mortgage.

However, the property remains subject to any prior mortgages or liens that were recorded prior to the association’s assessment lien. As a result, an association could lose title to the property if a senior lien holder forecloses on its deed of trust.

Can the association rent out the property? An association has the right to rent out the property. This may sound favorable to associations who are trying to gain some income to supplement their budget. However, there are rent skimming laws in California which provide that any rental income received within 12 Continued on page 12

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The Association as a Property Owner Continued from page 11

months of a foreclosure must be applied first to any amounts due to senior mortgages (Civil Code §890). If an association engages in rent skimming it could be sued for damages from the lender, former owner and tenant.

In addition to the rent-skimming issue, if the association begins to rent out the property it must deal with the issues that come with being a

landlord. The association may face liability that may arise from issues such as habitability, problem tenants, and housing discrimination claims.

Can the association sell the property? Yes. However, unless the senior liens are satisfied or the buyer takes title subject to the senior liens, the association may have difficulty selling the property if it is encumbered.

What is the association responsible for as an owner? Among other things,

the association would be responsible for paying property taxes and/or mello-roos assessments. Also, the association must make sure that the property is in compliance with its CC&Rs. As an owner of the property the association could face liability for personal injury to occupants or third parties, and other claims. The association should acquire its own insurance policy to cover such claims.

The association’s role as a homeowner is unique and exposes it to risks and liabilities that it may not ordinarily be exposed to. Associations should consider the responsibilities and liabilities of property ownership when choosing foreclosure as a method to collect delinquent assessments.

Sheba S. Yaqoot, Esq. is an associate attorney in the Inland Empire office of Fiore Racobs & Powers.

Steven G. SeGal InSurance aGency, Inc. Over 33 years of experience specializing in: Condominium Associations • Planned Unit Developments • Hard to Place Associations Earthquake Coverage • High Rise Condominiums • Workers Compensation

Toll Free: 800-345-8866 • Toll Free Fax: 800-262-0973 Email: SSegal@farmersagent.com • www.farmersagent.com/ssegal 12 | ISSUE ONE 2013 • Connect with grie

The GRIE was honored to hear from their four IN THE SPOTLIGHT PCAM® inductees ® from 2011 in the fourth issue of Connect magazine giving us a glimpse into their lives and their journey to their PCAM® designation. This spotlight article was so well received that the magazine committee agreed that we would, once again, honor this year’s two inductees by giving them the opportunity to share their PCAM® Case Study experience which was held at Sunnymead Ranch PCA in Moreno Valley CA in July, 2012. The two GRIE Chapter individuals who have attained this prestigious designation this year are Liz Kemme, Community Manager, Equity Management Company and Dana Mathey, Division Manager, Euclid Management Company. Here are their stories.

The PCAM Experience

Dana Mathey, CCAM, CMCA, AMS, PCAM

My career in Property Management has spanned over 20 years. I began as an onsite General Manager for a planned unit development and have been part of the team at Euclid Management Company for the past 13 years as a Division Manager.

My designations include CCAM, CMCA, AMS and PCAM. I am married and have two children and enjoy playing golf and horseback riding.

Obtaining my PCAM was my ultimate goal in my education process. Finding time to complete the process was a challenge; however Sunnymead Ranch was in my backyard and I was ready for the test. The three day experience at Sunnymead Ranch was full of information, inspections, meeting new people and was the easiest part of the case study. Scheduling the time to work on the case study would prove to be the most difficult. I say the most difficult because I had a planned vacation the day after the study was due in the CAI office, so scheduling my time was important.

Completing the case study was gratifying. Being able to analyze the Association and then create a study based upon my evaluations of the site, tested my skills as a manager in the industry. The questions at the onset might seem simple but the answers are intricate. I enjoyed producing my case study, but most of all receiving the letter stating congratulations!

I believe ongoing education is the key ingredient to any career. Receiving the PCAM designation is the pinnacle of my career; however I will not stop educating myself and giving my time back to this industry.

Liz Kemme, CMCA, PCAM

I am a proud native of San Diego, and in 1992 made a home with my family in Temecula. I have worked in the Common Interest Development Industry nearly seven years as a community manager, managing a portfolio of both commercial and residential developments. I have over twenty years of customer service background and continuing education experience from the Hospitality Industry, consulting and sales in advertising, managing an Independent Living Community to the CID Industry.

Working at Equity Management I was awarded the Associa Individual Achievement Award in 2010. But, what I am most proud of in my professional accomplishments is earning the highest national recognition for managers, through CAI, my Professional Community Association Manager (PCAM) designation. “PCAM” is more than a title as it is earned and deserved, representing recognition of knowledge and dedication.

I felt honored and proud just to pass the prerequisites of the PCAM application process, which is when I realized what it took to get to this point, though much was ahead in earning this designation.

The onsite case study was a nervous and exciting experience, bonding with others knowing we shared the same goal. It was definitely challenging not knowing what was expected of us until the end of our onsite experience. I snapped photos of everything in sight; writing and recording; observing and absorbing, in an effort to accomplish our shared goal. Nervous and overwhelmed, in sorting and organizing the plethora of information, yet needing even more which I obtained through various professional resources and from my own experiences.

And making time to maintain my focus! Exciting, as by nature, I am a nurturer and enjoyed exercising creativity in expressing ideas and recommendations for this community.

Overall, I truly enjoyed the experience and preparing my thesis. Yes, it was rewarding, worth it…and I am proud.

These two managers should serve as excellent examples to others who are considering taking the important steps to attaining this very important and highly regarded designation. Great work both of you.

By Betty Roth, CMCA, AMS, PCAM, General Manager for Sunnymead Ranch PCA in Moreno Valley, through Avalon Management Group, Inc.

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Legislative Support Committee Says…Thank You! Acknowledging Achievement & Recognizing 2012 CLAC Donors

by Nancy I. Sidoruk, Esq. • Legislative Support Committee Chairperson & CLAC Delegate

2012 was a banner year for CAI-GRIE member contributions to CAI’s California Legislative Action Committee (CLAC). For the third year in a row, we didn’t just reach, but exceeded our CLAC fundraising goal. Our 2012 target, as established for the chapter by CLAC, was $16,138. Thanks to the efforts of our Legislative Support Committee (LSC) and the enthusiastic support of community associations, volunteer leaders, individual managers, management firms and business partner members, we contributed an impressive $20,736.

As you probably know, our LSC supports the efforts and strengthens awareness of CLAC. CLAC is a committee of CAI National that monitors and takes positions on legislation, educates elected state lawmakers, and protects the interests of those living in California community associations. As the official CAI voice of community associations in the state, CLAC coordinates and executes strategy on matters of public policy. The LSC provides CLAC with consistent, coordinated support at the chapter level, including not only fundraising, but also information sharing and grassroots efforts.

Whether you contributed individually, as part of your community association’s buck-a-door program, through attendance at chapter programs or by sponsoring and participating in our annual Evening at the Winery, your help was critical to our success in 2012. Every dollar raised counts and is directed toward the worthy, non-profit activities of CLAC. Our chapter’s 2013 fundraising goal is $16,582, so let’s get started!

For more information about CLAC and to obtain the resources you need to help you educate others about CLAC fundraising options, legislative issues impacting community associations and more, visit www.caicalif.org or www.caiclac. wordpress.com.

2012 CLAC DONORS Andalusia Community Association Equity Management Beacon Industrial Park Property Owners Association Voit Management Beaumont Gitlin Tashjian Jeffrey Beaumont, Esq. CAI-GRIE Chapter Members Canyon Hills of Riverside Homeowners Association Condominium Management Services Claremont Stone Creek Community Association Condominium Management Services Dutch Village Master Association Voit Management French Valley Landscape Maintenance Association Voit Management Lemonwood Villas Homeowners Association Condominium Management Services Rancho San Ramon Landscape Maintenance Association Voit Management Riverside Canyon Crest Villas Homeowners Association, Inc. Condominium Management Services Roick Industrial Park Property Owners Association Voit Management SBS Lien Services Mitch Willet Spanish Hills Ranchos, Inc. Voit Management Sunnymead Ranch Planned Community Association Avalon Management

Nancy I. Sidoruk is an Attorney with Epsten Grinnell & Howell, APC, and serves as CAIGRIE Legislative Support Committee chair and delegate to CLAC.

14 | ISSUE ONE 2013 • Connect with grie

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AMS Paving, Inc. Andre Landscape Artistic Maintenance, Inc. Berg Insurance Agency CommerceWest Bank DeNichilo & Lindsley LLP Elite Pest Management, Inc. Epsten Grinnell & Howell, APC Fenton Grant Mayfield Kaneda & Litt Fiore, Racobs & Powers, A PLC First Bank International Paving Service, Inc. IRC Services & The Termite Guy Merit Property Management, Inc. Nelson Paving & Sealing Pacific Western Bank Professional Community Management RGS Landscape Services, Inc. Seacoast Commerce Bank Summit Security ValleyCrest Landscape Maintenance Voit Management

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2012 TOPS Award Winners 2012 Chapter President Robert Riddick, CMCA pictured with each award recipient.

Association of the Year - Large Category Rosetta Canyon Community Association

Connect Magazine Article of the Year written by Phil Hakopian, CIRMS

Lucas Mitchell Community Outreach Volunteer

16 | ISSUE ONE 2013 • Connect with grie

Association of the Year - Medium Category Palacio de Oro

Committee of the Year - Business Partner Committee

Manager of the Year Jayson Benanti - PCM

President's Award - Member

Association of the Year - X-Large Category Wild Rose Ranch Community Association

Chairperson of the Year - Jan Savvy (not pictured - recipient Co-Chair Marianne Pick) Sandra Flores Community Outreach Volunteer

Hall of Fame Inductee Liz Williams President Robert Riddick, CMCA - Blair Loubet

Rising Stars - Nick Mokhlessin & Brian Henry

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President Robert Riddick Appreciation connect with grie • issue ONE 2013

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By Brian D. Moreno, Esq.

Save Your Community, Protect Its Funds Community associations would cease to exist without adequate funds. Thus, given the current economic climate, community associations are working harder than ever to collect assessments from owners to stay afloat. Logically then, community associations should work equally as hard in safeguarding existing community funds, right? Then why are community associations across the nation continuing to experience embezzlement and fraud?

I

t is true that not all fraud and embezzlement can be prevented; however, it is vital for community leaders to work smart and hard for purposes of decreasing the likelihood of theft and protecting the association’s funds. In this regard, the association’s focus should not only be on collecting delinquent assessments, but on protecting the assessments already collected by implementing smart policies and practices that guard against theft.

This article will focus on numerous tips for community professionals that are tasked with the responsibility of caring for the community’s common funds and therefore protecting the community from potential financial ruin.

Two Signatures Required.

California law already requires 18 | ISSUE ONE 2013 • Connect with grie

signatures from at least 2 board members in order to withdraw from the reserve account. The law does not prevent community associations from implementing this same policy with respect to an association’s operating account or other bank accounts. Two signatures should be required for checks or other transactions wherein money is going to be withdrawn from an association’s bank account.

While more convenient, the treasurer or property manager should not be authorized to sign checks without the signature of another director.

Pay Attention To The Bank Signature Card. Your association’s bank’s signature card designates the authorized signers on the bank account. In this regard, the signature card must be updated immediately so that it accurately reflects the

directors/officers that are authorized to sign checks and otherwise approve transactions for the association. The signature card and accompanying account agreement contain contractual provisions that should be reviewed by the association’s legal counsel in advance. Legal counsel for the association could offer advice about how to structure the account in a way that mirrors the association’s internal policies and procedures regarding bank transactions.

The Password Is... Even if the association has adopted a twosignatures-required policy, the handling bank may still decide to honor a check only signed by one person. Therefore, the association should consider meeting with a bank manager or representative for purposes of “flagging” the accounts such that

on a frequent basis. The officer/ director or person reviewing the statements should be someone other than the persons authorized to sign checks and make withdrawals.

To Bond or Not To Bond? All persons that handle the finances of the association should be bonded.

The board should consult with the association’s legal counsel and/or insurance representative to ensure that the money is insured and protected in the event of embezzlement.

Your Governing Documents Should Mirror the HOA’s Banking Policies. After the board has discussed and decided upon the appropriate internal policies with respect to banking transactions, the association should contact its legal counsel to revise the CC&Rs and/or Bylaws as well as draft necessary banking policies and procedures.

the two-signatures required policy is honored and carried out by the bank.

Likewise, the association should request that a password be placed with the bank so that a transaction may not be completed without the recitation of a special password.

No Check Cards Allowed. This may seem obvious, but associations continue to use ATM cards and check cards tied to HOA operating and reserve accounts. An ATM card allows the user to bypass the two-signatures required policy and withdraw money or make purchases without following the proper procedure. The cards also provide great opportunities for thiefs to steal money. Thus, ATM cards should never be authorized and tied to a community association bank account, and the “flag” or password note should indicate such prohibition,

so that any attempts to acquire an ATM card are blocked by the bank.

Background Checks Are Not Prohibited. The California corporations Code recognizes the risks associated with directors that have been convicted of a felony.

(Cal. Corp. Code, §7221(a).) Section 7221(a) authorizes a board of directors to remove a director who has been convicted of a felony. On this same theme, an association should consider adopting a policy that would require a background check be conducted with respect to any director that would have the authority to sign checks.

Review Bank Statements Frequently. One of the best ways to catch a fraudulent transaction or a transaction that is “out of the ordinary” is to review bank statements

Not all theft can be detected and prevented in a community association.

However, an association can significantly decrease the likelihood of theft and fraud by taking an active role in supervising the banking transactions of the community and implementing an appropriate policy that deters theft and encourages oversight. Community associations work hard to ensure assessments are collected – the same level of effort should be used to ensure that existing funds are kept safe and not stolen.

Brian D. Moreno is a Senior Associate Attorney with the law firm of Richardson Harman Ober PC. He specializes in the representation of community associations throughout southern California. connect with grie • issue ONE 2013

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Evaluating Banks for the Services They Offer

By Gwen Wertz

Changing banks for a community association and the management company can seem like an extremely daunting task.

If you are thinking of changing banks, then what should a community association and the management company consider?

There are five key questions that you need to answer when evaluating a new banking relationship.

20 | ISSUE ONE 2013 • Connect with grie

First and foremost, does the bank understand community association banking? The bank needs to understand not only the needs of the associations but the management companies that service them. The bank needs to be able to partner with the management company in order to provide depository and lending needs to the associations as well as service the financial needs of the management company. So when looking for a new bank, get to know the person that will be servicing the financial relationship. How many years' experience does that person have in the association industry and what is the experience of the team that supports them? Does the bank have the staff available to support you that understands your industry?

Second, research the bank and its financials. Is the bank financially strong and reporting profit or having trouble and reporting losses? Will the bank be strong enough to be around for a long term relationship? It is easy enough to verify a bank’s rating by visiting bauerfinancial.com and by visiting FDIC.gov to review a bank’s call reports.

Third, does the bank offer the products that are critical to your needs? Most banks have the basic financial products needed in the community association industry such as lockbox, online banking, ACH origination and savings products that offer additional FDIC insurance for reserve balances, but how easily does that bank’s products integrate with the management company’s software?

Are the products user friendly and will the bank provide training? Does the bank offer a lending program for homeowners associations? You need to ask the bank to provide you with a product comparison that will compare your current products with that of the banks that you are considering.

Fourth, you need to be completely aware of the product and service pricing. Ask for a pricing comparison to your current bank costs. Don’t be afraid to share your pricing with

the banks that you are considering.

By providing detailed information on transaction volumes, historical balances and cost, you are more likely to receive an accurate cost comparison. Make sure to ask questions regarding the comparison such as: Is the pricing that you have provided me standard pricing or is it reduced, and if it is reduced, what is the standard pricing and how long is the reduction guaranteed? Make sure that you understand each fee so that

there are no surprises later.

Lastly, what are the support hours of the bank? Are they going to be available when you need them? Will you have access to more than one individual? Are they only available during banking hours or is there after-hours support? Is the after-hours support a call center who does not understand your needs or is it your main banking team? Remember that you should feel confident when Continued on page 22

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Evaluating Banks Continued from page 21

choosing a bank, that you have chosen a solid financial partner who will be there for you 24/7.

There are many banks that offer community association banking so it is important that you choose the one that best fits you and the associations that you service. It is just as important that you choose a banker that you trust and have confidence in their expertise.

Banks need to be more than a

necessary part of your business, they need to be your advisor when it comes to your depository and lending needs.

They need to proactively work with you when it comes to enhancing your cash flow or maximizing the returns on reserve balances. They need to actively participate in your trade organizations so that they are kept up-to-date on changes within your industry.

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Other important considerations when changing banks is that you have a clear understanding of the transition process. Be prepared for OCR scan line changes, test runs, ACH file transitions, validation/stophold files and any required integration with your management software.

The better prepared that you are, the better the transition. Remember that a good transition needs 60 to 90 days.

Once you review and are comfortable with the bank and banker’s expertise, financial strength, products and services, pricing and support and are appropriately prepared for the transition, you will be able to confidently choose the right bank for you.

Gwen Wertz, EVP/CBO of CommerceWest Bank.

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22 | ISSUE ONE 2013 • Connect with grie

A Wake-Up Call About Online Fraud

A

By Mark Reider

dvances in online technology have revolutionized how we do business. Multimillion-dollar deals can be transacted with trading partners in seconds with just a laptop and the click of a mouse— boosting speed, efficiency, and profits for companies large and small. But businesses aren’t the only ones leveraging technology to boost profits. Criminals are using technology to commit fraud.

Corporate treasury managers need to beware. Whenever you access the Internet through a computer or mobile device, you run the risk of exposing your company’s systems to scams or unauthorized downloads. You may not realize your systems have been compromised until money is missing from your account or intellectual property has been stolen.

Criminal Methods

Online criminals have become extremely adept at stealing confidential information—like passwords, personal IDs, and token codes—and using them to access accounts,

transfer funds, and engineer other fraudulent transactions.

Two methods criminals are currently using with great success are social engineering and malware.

Social engineering manipulates people into making transactions or divulging confidential information by impersonating a trustworthy source in an e-mail (phishing), a highly targeted e-mail (spear phishing), or a text message (smishing). The fake e-mails or texts are sent to specific recipients from spoofed addresses that look completely legitimate.

One company suffered a significant loss when a criminal broke into the e-mail network of one of its vendors in China. The fraudster impersonated the vendor, skillfully imitating the tone and language of previous e-mails, and instructed the company to send future wires to a new account at a different bank. Because the request appeared to be coming from a trusted source they had done business with for years, the company complied and unwittingly wired a large sum directly into the fraudster’s account.

Continued on page 24 connect with grie • issue ONE 2013

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Six Security Guiding Principles You Can’t Afford Not to Implement Keep malware and antivirus programs up-to-date.

Make sure your company’s firewalls, servers, and systems are regularly updated with antivirus, malware detection, and antispyware software – like Prevx SafeOnline.

Be careful what you open or download.

Ignore phony e-mails or text messages asking you to update your information, activate an account, or verify your identity. Never open e-mails or download files from unknown sources.

Make dual controls mandatory.

Always require a second approval to make online commercial payment transactions or changes to the administration of online entitlements.

Use a dedicated computer for online banking.

For all of your monetary transactions, dedicate one computer that’s not enabled for e-mail or Web browsing.

Restrict Websites.

Visit only secure, trusted https web addresses and block access to websites that aren’t necessary for your business.

Monitor accounts and set up alerts.

Check accounts daily for suspicious activity and set up text or e-mail notifications for every electronic debit made from your accounts.

A Wake Up Call Continued from page 23

The Malware Threat

Malware is malicious software installed on a computer without the owner’s knowledge. It is programmed to record keystrokes, re-direct the browser, or display fake websites to impersonate a business in online banking transactions. Computers can easily become infected with malware through documents attached to e-mails; links contained in e-mails; infected search engine results; and links, videos, and documents posted on legitimate networking sites like Facebook or LinkedIn. A growing trend is for criminals to combine social engineering and malware to gather the credentials they need to perpetrate online banking fraud.

A Growing Problem

Financial institutions have increased their efforts to create more awareness around the potential 24 | ISSUE ONE 2013 • Connect with grie

dangers of online fraud—as well as the solutions available. Adds Richard Swartz, senior vice president and unit manager, product management for Union Bank: “Many customers are unaware of how serious the problem is, and how they can protect themselves with security applications like Prevx SafeOnline. In today’s fastmoving cyber world, it’s imperative that companies take action to protect their systems now – before a costly loss of assets or intellectual property occurs.”

Mark Reider, CMCA®, is Senior Vice President and Industry Manager for Union Bank’s Homeowners Association Banking Services. Mr. Reider joined Union Bank in 1987, and has been the Industry Manager for Union Bank’s Homeowners Association Banking services since its inception in 1996. A member of several Southern California chapters of the Community Associations Institute (CAI), Mr. Reider has spoken at CAI events and has also served on the board of directors for Greater Los Angeles chapter.

How To Pay For That Big Project

By Steve Schonwit

T

here comes a point in time when an association is faced with a monumental project, such as replacing roofs or decks, painting buildings, or performing significant wood repairs. And although the association has known about these projects (or should have known), for a myriad of reasons there is simply not enough money in reserves to pay for the work. The board realizes there are maintenance responsibilities and it needs to develop a financial plan.

Assuming this is not an emergency situation (under the Davis-Stirling Act, assessments addressing qualified emergencies do not need homeowner approval), there are essentially three basic options for funding a project: (1) begin aggressive increases to the monthly assessment; (2) approve a special assessment; or (3) consider financing options (most commonly in the form of a bank loan). The timing and cost of a project are significant factors that help determine the best approach, but quite often a special assessment provides the most ideal solution. This article will focus on special assessments, but will briefly summarize the advantages and disadvantages of the other two options: Aggressively raising regular assessments may be appropriate when a project can be delayed for a number of years (5 years or more). This may be more palatable since it tends to stretch out the required funding over a longer period of time. A disadvantage of this approach includes the fact that the monthly or annual assessments may become excessive for the neighboring area, possibly making homes difficult to sell. Homeowners often become discontent when they do not see how “their”

money is being spent. Higher assessments are being paid, yet the results will not be seen for years down the road.

Bank loans are good options when funds are needed in a very short period of time and when it would seem infeasible or unlikely that a majority of the homeowners could likewise meet such financial burdens. Bank loans commonly carry longer terms (often 10 years or more), allowing for owners to pay lower monthly amounts to cover the funding of a project. And, since the loan is taken by the association, individual owners do not need to meet qualifying requirements. Bank loans may be considered disadvantageous as they tend to add significantly to the overall cost of the project (loan fees and interest burden can add up to 30% to the overall cost of a project). These costs can be avoided with better, advanced planning. Finally, accounting for bank loans and determining proper owner assessments (to repay the bank loan) can often create challenging issues for associations.

That leaves us with the commonly labeled “dreaded” special assessment. Special assessments are advantageous because they typically assess current owners (rather than passing the burden on to future owners), represent one-time transactions, provide flexibility with respect to different payment options, and do not technically raise the normal monthly Continued on page 26

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How to Pay for That Big Project Continued from page 25

assessment (allowing the community to stay competitive with neighboring associations). Additionally, if assessed at one time, even if being paid in various installments, unpaid balances of a special assessment will normally be collected through escrow upon changes in ownership.

A disadvantage of a special assessment is that they generally require homeowner approval (typically a majority of a quorum, but size of a community might carry other requirements for approval), which in turn requires the “double-secret” balloting process and associated administrative costs. Additionally, the full assessment could be subject to collection issues for delinquent or nonpaying owners (uncollected balances would not be paid by foreclosed lenders since the assessment would have been made before such lenders take title). Therefore, the total special assessment needs to include

a provision or cushion for possible collection issues.

To determine how much of a special assessment may be needed, an association first needs to determine the scope of the project. The scope needs to include a time-frame for when the project will begin and, of course, a cost estimate. Oftentimes, trying to determine the timing of a project is one of the more challenging decisions by a board, due to conflicting ideas about priorities, needs, or esthetic concerns. To assist with such issues, and depending upon the nature of the project, an association should consider hiring a construction advisor who can provide timing parameters, bidding parameters and eventual support in choosing appropriate vendors.

Once this information has been obtained, an association can then begin crunching numbers to determine how much of a special assessment will be needed. In doing so, an association should develop no more than one or two strong financial plans, as anything

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more provides confusion and tends to split crucial “yes” votes during the voting stage. Associations often bring in an industry accountant who can assist with such matters. Special assessments can be designed to fund a single project, multiple projects, or bolster general reserve funds to cover known needs down the road.

To improve upon the successful passage of a special assessment vote, associations should formally present their plans to the homeowners in the form of a town-hall meeting.

The primary goal of the townhall meeting is to bolster support for a “yes” vote, which can be accomplished by providing solid, well thought-out information and by allowing homeowners a venue to ask questions and provide comments and suggestions. Successful townhall meetings have the following in common: Attendees will be provided with a written summary of the proposed project, estimated timing of the project, and related costs. The meeting will have a defined agenda, identifying presenters in attendance, general outline of the meeting, and other necessary rules (such as time limits per homeowner). PowerPoint presentations, charts, or sample products are often used for illustrative purposes and add professionalism to the meeting. The association’s trusted advisors (attorney, construction consultant, and accountant) are often in attendance, providing third-party, objective perspectives. These advisors should also be industry experts who can provide appropriate and accurate answers to the many questions that often arise at these types of meetings.

Finally, the town hall meeting should provide some trigger (straw vote, hands, etc.) to help gauge whether a special assessment vote will be successful. Once homeowners have been provided with solid and convincing information, along with the knowledge that professionals have been used to assist with the planning of the project, passage of a special

assessment is easier than one might expect.

Shortly after the town hall meeting, the board should meet to review the responses, make necessary changes to the proposed special assessment (based upon homeowner feedback), and prepare ballots and other materials for mail-out to the owners. Consistent with other election procedures, a membership meeting must be established for purposes of counting ballots with notice being given at least 30 days in advance.

Accordingly, ballots likewise should be distributed no less than 30 days prior to the meeting date. Generally, special assessments only require approval of a majority of a quorum (smaller communities may face stricter requirements). Once a quorum is reached, only a majority of the ballots received need “yes” votes to approve the special assessment.

The board of directors are charged with the responsibility of ensuring that the common areas of the community are being maintained in accordance

with an association’s CC&Rs and within guidelines established under the Davis-Stirling Act. To accomplish this, fiduciary duties include making sure that there are sufficient funds available to meet such needs. Board members often try to shoulder too much of the burden of a financial crisis, arm wrestling with how much and when to increase assessments. A better approach is for board members to understand the financial situation and share the information with their community members. The harshest complaints often come from homeowners who are caught off-guard when significant increases or special assessments are posed. However, we should not forget that board members must also pay their share of the assessments!

Regardless of the outcome of a vote, the homeowners will ultimately be sending a message to the board as to how the community, in general, would like to fund its maintenance obligations. While this might not always coincide with the best laid plans, it does convey how the community

will move forward, shifting that “burden” from board members to the community. Of course, in a more perfect world, it would be better to avoid the sudden need for special assessments by adopting good financial habits (annually funding reserve obligations in accordance with reserve studies). However, when this does not happen, there are viable options to deal with funding requirements. The key is to obtain input from respectable industry experts, develop careful and conscientious plans, and communicate the needs and solutions to the community in appropriate forums.

When this is accomplished, you will be amazed how the burden can be lifted!

Steven Schonwit is a CPA and principal owner of Schonwit and Associates, CPA’s. He has been providing auditing and consulting services for the homeowner association industry for over 22 years.

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pacificwesternbank.com connect with grie • issue ONE 2013

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Interview with CAI-CLAC Chair Pamela Voit How did you first get involved with CAI-CLAC and when?

I first got involved with CLAC as a delegate in 2006. At that time, I was very active in my community with civic leadership, including three terms as the chairman of my local Chamber of Commerce and a board member of the county Economic Development Corporation. I was able to see firsthand how Pamela Voit, CMCA, AMS, PCAM the impacts of state and local Owner, Voit Management legislation were significant to the quality of life in my town.

Therefore, there was a natural tie-in with the community association industry that I had worked in since 1985. Since then, I have seen an inordinate amount of bills that have had considerable impacts on the ability of associations to govern. There are more laws, more fiscal impacts and no less confusion on how associations should be run. I became a CAI-CLAC delegate to try to make a difference in the preservation of rights in community-governed neighborhoods.

In your new role as chair, what is your most important goal?

Of course, with the dedicated executive committee and involved delegates that we currently have, I would like to continue the public relations outreach through our social media outlets and website so that our members can have a voice. We are also moving into traditional media interactions so that CAI can continue to be the preeminent organization providing education and advocacy for common interest developments.

However, I am also interested in initiating outreach from CAI to the elected officials in our cities and counties so that there is a more cohesive connection between the municipalities that mandate HOAs be formed, and those that must govern and facilitate those governing documents and laws on behalf of the property owners. There needs to be a close understanding between the ‘why’ and the ‘how’ of association governance. Municipal leaders are very involved with their local legislators and can have a positive impact on association issues. I believe that we have the same goals in common – well-governed and maintained communities.

With a stronger connection, maybe we will see a clearer understanding from our legislators in Sacramento when considering whether the proposed legislation is necessary, or best left to a system where HOA property owners have a structure in place to make decisions for their individual association’s needs; or support legislation that would help associations maintain vitality.

28 | ISSUE ONE 2013 • Connect with grie

How would you like to work with CAI-CLAC members this year?

With the assistance of a great PR Committee, we are working to more fully engage CAI-CLAC members through an update to our website, blog articles and tweets. I am encouraged that we have seen an escalation of interest in the work that CLAC does, as evidenced by the significant participation of our grassroots calls to action. In the case of AB 2273, the involvement of our members clearly made a difference to enacting an important bill that had considerable opposition from the large lending lobbies. We were successful because of the actions of the members upon our request. I am appreciative of the support and hope that together we can become an even stronger force in Sacramento.

What are the biggest challenges facing CAI-CLAC members this year?

Each and every year, we face new legislation that threatens fiscal accountability or self-governance.

This legislation generally comes from an inherent misunderstanding of how associations are governed, or by proposed reactive legislation from a ‘story’ or situation that doesn’t represent the majority of associations. We will need to address those challenges as they come along, while trying to pass positive changes such as electronic voting. As a selffunded organization, we depend on the advocacy fees and support of our members to provide the resources to fight negative legislation, propose needed bills and continue to educate in California. So it will be important to get our message out to those associations who do not know about the great work that CAI-CLAC does on their behalf.

What do you see as the strongest value of CAICLAC?

Unlike many types of industry organizations, CAI represents all of the stakeholders in the community association industry: associations, owners, board members, managers and business partners all under one umbrella for the common benefit of communities across America. CAI National and each individual Chapter offers a multitude of educational seminars and resources for the successful governance of communities. Likewise, CLAC plays an important role in protecting self-governance that was granted with the governing documents. We fight to avoid reactive legislation, which may trigger higher costs for administration or adherence, and reach out to educate and inform those stakeholders on the impacts of their actions. If we want great communities, we need to support great organizations. CAICLAC is one of them. While sometimes intangible, or in the background, the work of CAI-CLAC has a long history of significant differences to communities in California.

Please go to CAICalif.org to learn about our latest legislative accomplishments.

20th Annual Legislative Day at the Capitol What’s Going On in Sacramento April 28th & 29th, 2013?

By the CAI-CLAC Public Relations Committee

Y

ou might have heard about the Legislative Day at the Capitol that happens in Sacramento every spring where people in the HOA (or Common Interest Development [CID]) industry meet up to educate their legislators about bills that may affect how homeowners associations are able to function in the State of California.

Many legislators (especially this year) are new, and have never had any formal training on exactly how to “legislate.”

They are often very happy to get the input we have to give them, and they take it seriously… If a constituent takes the time to come all the way up to Sacramento to tell them what they think, they want to listen.

But what exactly happens during this two-and-a-half day event? Like any good gathering of folks, it starts with a party! The California North Chapter of CAI hosts a Monte Carlo Night (on Saturday, April 27th this year) which is a perfect chance to mingle with everyone who has come in from out of town, while enjoying food, drinks and some casino-style gambling. It is a relaxed atmosphere in a unique setting and a great way to kick off the event.

Sunday (April 28th) is the day when the delegates (there are two from each California chapter), the liaisons and the Executive Directors get together to discuss the legislation that impacts our industry, and the delegates vote to take positions on the bills. Everyone not involved in the delegate session has the opportunity to attend education sessions from 11am to 5pm. Here is the line-up for this year’s educational events: 11am – Welcome to Sacramento!/How a Bill Becomes Law We will start out by discussing what to expect out of the Legislative Day experience, going over the agendas for each day and explaining each item. We will also talk about the process of a bill becoming law and our involvement in that.

This session is specifically tailored for first-timers.

12pm – Lunch and Roundtable This year we are pleased to have sponsors who will be paying for lunch for the people attending the education sessions. While we eat, Betty Roth from Sunnymead Ranch POA will conduct a Roundtable, getting stories from the participants about what brought them to the event as well as any experiences they have had (both positive and negative) regarding the implementation of new law within their associations.

1pm – How Government REALLY Works Join John MacDowell from Fiore Racobs & Powers as he brings video

from behind the scenes at a legislator’s office to give you a view into the REAL workings of a legislative office.

2pm – Many Faces of a Bill Baydaline & Jacobsen LLP will be speaking to us on a more advanced level about the language of a bill, how it changes through the process and some of the interesting behind-the-scenes details about bill language in Sacramento.

3pm – The Davis-Stirling Rewrite It becomes law in 2014, so we wanted to give you an opportunity to hear more about implementation, as well as some of the areas that will be changed in a clean-up bill (already!) to the recodification of the Davis-Stirling Act. Kelly Richardson from Richardson Harman Ober will lead you through it and get your questions answered.

4pm – Hot Bills with Skip Daum! This VERY popular session has been moved to later in the day to accommodate travel for many attendees. It is the biggest hit every year, so be sure to attend! You will be given the lo-down on the bills that affect our industry so you can better understand how your associations may be impacted.

After the education sessions on Sunday, we all convene to the Dine with the Delegates dinner to get a chance to mingle with the delegates, liaisons and Executive Directors that were busy taking positions on bills all day.

Monday morning (April 29th) we make sure that you are brought up to speed with changes in Federal law as well as bill briefings on the bills you will be talking to your legislators about later that day. During lunch we honor the volunteers who have made a difference in the California Legislative Action Committee (CLAC) as well as the California chapters that have gone above and beyond in their support of CLAC. And at 1:30 pm we all march across the street to the capitol building to educate our legislators about the bills that matter most to us.

Be a part of our “voice” in Sacramento. Help a legislator see, maybe for the first time, how their decisions can impact millions involved in HOAs in ways they never thought of.

You really can make a difference in the quality of community association life throughout California.

To find out more about the 20th Annual Legislative Day at the Capitol, visit www.CAICLAC.com and look under “Upcoming Events.” connect with grie • issue ONE 2013

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Is Your Association Shopping for a Loan?

By Geri Kennedy, CCAM and Jan Hickenbottom, CCAM, PCAM

W

hen an association determines that a loan will be necessary to help fund a project, often the first question asked of the banker is, “What is the interest rate?” Although this is a valid question, the interest rate is only one of the loan features that should be considered in order to compare which bank’s proposal will be the best for your association’s needs.

The association should be seeking proposals and options from a bank that is familiar with providing loans to HOAs. The CAI chapter directory is a good place to start your search for lenders if you want to compare proposals. These lenders generally accept the association’s assessment stream as collateral. If that is not the case, be sure that you understand clearly what collateral will be used. Will other HOA funds be frozen? Will liens be filed by the bank? Will homeowner’s deeds be affected?

Here are some additional questions that will help provide a more “apples to apples” understanding of the differences and how they may impact the association’s financial condition over the course of the loan.

• What is the longest term that the bank will offer?

– Usually, a bank will not lend funds for longer than the life of the component. For example, a paint job generally has a five- to eight-year life expectancy. The bank may only lend for 5 years for a painting project.

– Depending on the size of the loan and the number of units or lots, a bank will usually determine a reasonable amount of time for the loan term.

– A shorter term will reduce the amount of interest paid on the principal.

• How much are the loan fees?

• Will there be additional charges for legal review, document preparation or project inspection?

• What is the time frame for processing the loan? How long will it take from the time that the association submits all application documents until the lender approves or denies the loan? If the loan is approved, how soon will loan agreements be presented for signing? How soon will the association have access to loan funds so that contractors can be paid?

• How will the loan funds be provided to the association – lump sum or line of credit?

• Will there be a draw period? How will draw requests be handled and by whom?

– It is common for the association to borrow what is needed to pay the vendors as the project progresses.

Usually, interest is charged monthly only on the amount borrowed. At the end of the draw period, the amount borrowed becomes a term loan and payments including both principal and interest will begin.

• Is the interest rate fixed or variable? If variable, what are the conditions for rate changes?

• Can the loan be amortized over a longer period with a balloon payment after a specific amount of time? (The loan would then be refinanced, or it is possible that the balance

30 | ISSUE ONE 2013 • Connect with grie

would be low enough that the association could simply pay it off. This may be the case if homeowners have paid their special assessment early.)

• Are there any prepayment penalties at any time during the course of the loan? If so, what are the penalties? How are penalties computed? Can the association make additional payments to principal without penalty and will the loan be reamortized to reflect the lower balance? (This is important if the loan payments are funded through a special assessment.

It is common for unit owners to pay their special assessments early, often because the homes have been sold or the owners have refinanced their unit. Those funds received by the association should be used toward the loan balance.) When comparing proposals, prepayment penalties can wipe out the perceived advantage of a lower interest rate.

• Will the bank require that the homeowners vote on obtaining a loan? Is a super-majority required rather than a simple majority?

• Is there a requirement to keep the association’s funds in the lending bank? What are the service charges and other fees for the operating and reserve accounts?

• What are the ongoing requirements during the course of the loan?

– Submittal of annual financial reviews or audits?

– Annual budget?

– Evidence of renewal of the association’s insurance coverage?

• Will the loan servicing remain with the bank’s HOA department? Does the bank have adequate staff to handle your draw requests and customer service needs in a timely manner?

• What is the interest rate? Small changes in the interest rate do not have much impact on the monthly payment. For example, if the association has a seven-year $500,000 loan, each .25% change in the rate only increases the association’s monthly payment by about $60. If a bank offers a low interest rate but also has a prepayment penalty, see #9 above.

• With these questions in hand, you will be prepared to meet with bankers and compare their proposals to see which one is the best for your association. If you are contemplating a bank loan for your association, it’s never too early to talk to your banker.

Geri Kennedy, CCAM® Emeritus, is a vice president and relationship manager in the Association Bank Services division of First Bank in San Mateo.

Jan Hickenbottom, PCAM®, CCAM®, is a vice president and relationship manager in the Association Bank Services division of First Bank in Newport Beach.

5029 La Mart, Suite A Riverside, CA 92507-5978