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connect A Publication of the Greater Inland Empire Chapter of CAI

ISSUE FOUR 2013

Legal Update – So Much Great Information! The Trifecta: Defects, Duties and Disclosures Case Law Wrap-Up Four Collection Myths & the Truth About HOA Foreclosures Hot Bills from 2013 A Good Year for the Industry The New Davis-Stirling and CID Acts – They’re Here! Assessment Collections – Compliance with Legal Requirements a Necessity

CLAC Corner Davis-Stirling 2014


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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

Features

22 The GRIE’s Newly Elected Board Members

4 The Trifecta: Defects, Duties & Disclosures

24 The Sustainable Landscape

By Ann Rauch, Esq.

7 Case Law Wrap-Up By Matthew Deenihan, Esq.

Robert Riddick, CMCA...................................................... Past-President Sunnymead Ranch Planned Community Association BOARD DIRECTORS Weldon L. Brown ........................................ Weldon L. Brown Company

10 Four Collection Myths & the Truth about HOA Foreclosures

Linda Krebs ..................................................... Flower Lighting & Electric Dana Mathey, CMCA, AMS, PCAM....... Euclid Management Company Shelly Risbrudt............................................Pilot Painting & Construction

Professional Community Management

Chapter Executive Director

9 Editor’s Link

By John R. MacDowell, Esq.

15 They're Here... The New Davis-Stirling and Commercial & Industrial CID Acts By Kelly G. Richardson, Esq., CCAL

Editor in Chief

18 Strict Compliance with Legal Requirements is Necessary in Assessment Collections

Publications Committee Tom Carrasco ....Environmental-Concepts Landscape Management, Inc.

7 President’s Message

13 Hot Bill for 2013 – A Good Year for the Industry

DJ Conlon, CMCA

Betty Roth, CMCA, AMS, PCAM...Avalon Management Group, AAMC

Departments

By Mitch Willet

Kristie Rose, CMCA, AMS, PCAM, CCAM........... FirstService Residential Alisa Toalson, CMCA, AMS, CCAM

By Tom Carrasco

By Lana Hamadej, LSM, PCAM

Linda Cooley.............................Rosetta Canyon Community Association Dori Kagan, CMCA, CCAM-Emeritus.......................Pacific Premier Bank

By Kimberly Lilley, CIRMS

By Laurie S. Poole, Esq., CCAL

By Betty Roth, CMCA, AMS, PCAM

21 CLAC Corner Davis-Stirling 2014: The "Clean-Up" Legislation By Nancy I. Sidoruk, Esq.

26 2014 Calendar of Events 27 "Picnic at Canyon Crest" Golf Tournament Photos

Lana Hamadej, LSM, PCAM ..........Avalon Management Group, AAMC Jan Hickenbottom, PCAM, CCAM .......................................... First Bank Cang Le, Esq. .......................................... Fiore Racobs & Powers, A PLC Kimberly Lilley, CMCA, CIRMS............................ Berg Insurance Agency Robert Riddick, CMCA.......................................Sunnymead Ranch PCA Nancy I. Sidoruk, Esq. .............................Epsten Grinnell & Howell, APC Jasmine Fisher, Esq............................................ Beaumont Gitlin Tashjian Sheeba Yaqoot, Esq. ................................ Fiore Racobs & Powers A PLC 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.”

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 —

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

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 FOUR 2013

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The Trifecta: Defects, Duties & Disclosures 4 |

ISSUE FOUR 2013 • Connect with grie

Y

ou think you’ve got problems. Your community association just served a pre-lawsuit notice to the developer contending construction defects. Now what? Will the units sell? Will financing be a problem? Who makes the disclosures, and when? When a community association initiates a construction defect claim for common area problems, these are some of the first questions the association (or its manager) faces. The answers to the legal questions have always been fairly straightforward, and believe it or not, the law just got clearer on the subject! In any transaction to sell a home in a common interest development, the owner/seller owes the disclosure duty. California Civil Code section 4525 (formerly section 1368), the statute which lists all the documents a buyer must receive before close of escrow on a unit within a common interest development, begins with, “[t]he owner of a separate interest…” shall make the disclosures. The disclosure documents include the governing documents of the association, the latest annual financial disclosure made to members, and a


By ANNE RAUCH, Esq.

host of other things specific to the common interest development. Among the laundry list of documents the prospective buyer receives is a copy of the preliminary list of defects that the homeowner association served before initiating construction defect litigation. If the association has resolved the construction defect lawsuit, then instead of the pre-litigation defect list, the prospective buyer would get a copy of the post-litigation notice to owners regarding the association’s plan for repairs. Notably, these are not the association’s disclosure responsibility but are instead the owner’s responsibility. However, in practice, the association’s management company is almost always in the middle. In fact, the law contemplates the management company will be in the middle. Under Civil Code section 4530 (formerly section 1368(b)), the association’s management company must provide all the disclosure documents listed in the Code to the owner “or any recipient authorized by the owner” within ten days from the date of the request. These are called “escrow demands.” In order to keep the duty where it belongs – with the owner – many management companies have a practice of requiring the owner to approve the list of documents before it is transmitted to the buyer or buyer’s agent in response to an escrow demand for documents. It is pretty straightforward. The idea is to provide prospective buyers with sufficient notice regarding the gist of a community association’s claim for construction defects in a common interest development. This need for disclosure of an association’s claim for construction defects has been recently reaffirmed and further clarified in legislation which was just approved and will take effect January 1, 2014. Senate Bill 652, recently signed into law by Governor Brown, now makes

The idea is to provide prospective buyers with sufficient notice regarding the gist of a community association’s claim for construction defects in a common interest development. express what, in the opinion of most, was already implied. Under the new law, the standard transfer disclosure statement used in all California sales of residential property shall be amended to specifically require disclosure by the seller of: 1. Any lawsuit by or against the seller “threatening to or affecting” the property. 2. Claims for damages by the seller pursuant to Civil Code § 910 or 914 (construction defect claims statutes). 3. Claims for breach of warranty pursuant to Civil Code § 900 (construction defect claims statutes). 4. Claims for breach of an enhanced protection agreement pursuant to Civil Code § 903 (construction defect claims statutes). 5. Claim alleging defect or deficiency in the property or common areas improvements. Consistent with the law that the owner owes the disclosure duty, the transfer disclosure statement is signed by the owner/seller of the property, not the community association. Before this change in the law, we would frequently get questions as to whether an association lawsuit needs to be disclosed

by the individuals or the association. As most real estate legal practitioners would agree, the best answer is the old saw, “if you have to ask, then the answer is yes.” With the revisions to the transfer disclosure statement, there is no need to even ask the question. Disclose early, disclose often. Going back to the original questions: Will the unit sell? Will financing be available? These are questions which are market driven, more than anything else. In a seller’s market, litigation is less of an issue for both buyers and lending institutions. However, even in a down market, financing for homes in communities which are in litigation is available. Depending on who you ask, you may need to go with lenders who are more flexible on the checklists that apply to the approval process. According to association manager Ryan Figley of Action Property Management, “People make it more of a big deal than it really is. In one of my associations, twentyfive percent of a newer community sold even after the association initiated a construction defect claim. Disclosures were made, and the sales still happened. Often the lenders will push back with questions, and we answer the questions to the best of our ability. With the owner’s consent we give them the facts, and they make their decision. Usually, it’s favorable. An owner may not always be able to qualify for the best rates, but rates and financing appear to be available in communities with litigation pending.”

Anne Rauch is an attorney with Epsten Grinnell & Howell, APC, representing community associations throughout Southern California in construction defect litigation. connect with grie • issue FOUR 2013

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PRESIDENT’s MESSAGE

Greetings and welcome to the fourth issue of the 2013 Connect magazine. It is difficult for me to believe that this year has passed so Lana Hamadej, LSM , PCAM quickly. I would like to take this opportunity to thank all of the fine volunteers that make our Chapter the successful and outstanding organization that it is. It is because of you that we have great programs, fun social events, and informative publications. While I could not possibly name every individual who has contributed to the continued success and growth of CAIGRIE and I wouldn’t want to forget any of those of you that have been instrumental so consider this a group THANKS to each and every member ®

of our Chapter who made a difference during 2013. I also want to take this opportunity to welcome our newly elected board members who will take office January

I wouldn’t want to forget any of those who have been instrumental so consider this a group THANKS to each and every member of our Chapter who made a difference during 2013.

®

1, 2014, Nancy Sidoruk, Cyndi Koester, Greg Borzilleri and our members elected for their second term, Kimberly Lilley and Shelly Risbrudt. Our President-Elect Kimberly Lilley will introduce you to those elected later in

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ISSUE FOUR 2013 • Connect with grie

this issue as well as give you a glimpse of what next year will bring. October brought us another successful California Legal Forum held at the Irvine Marriott. This event is a collaboration of all of the Chapter Executive Directors throughout the state and offers pertinent topics presented by various lawyers from our industry. The day proved to be very worthwhile and we should acknowledge each of the CEDs, but especially our very own DJ Conlon for their efforts in bringing together relevant topics and increased attendance each year. If you haven’t previously attended, look for information for the 2014 Legal Forum as it is a not-to-be-missed event. Mark January 31, 2014 on your calendar and look for more information to come. That evening, we will acknowledge all of the members of our Chapter who have achieved the highest designation available to professional community managers and who continually demonstrate their commitment to this industry by their professionalism and continuing education. The PCAM Reception will be held at the Wilson Creek Winery. Please be sure to check the Chapter website for more information on this special event and plan on attending as we toast these professionals for their accomplishment and dedication to the community association industry. In closing, I want to again offer my thanks to each and every member of this Chapter who contributed this year. Please know that it is deeply appreciated and without all of you, our Chapter would not be the success that it is and continues to be. Thank you all. With that, I am looking forward to working with our incoming President, Kimberly Lilley and the other members of the board and committees. Thanks for joining on this cruise. I hope that you found this year to be as successful as I did.


By Matthew Deenihan, Esq.

Case Law Wrap-Up As always, the courts are hard at work resolving disputes between homeowners, associations, and even developers that no longer have a stake in their developments. Here are some recent cases affecting common interest developments around California.

Wittenburg v. Beachwalk Homeowners Association (2013) 217 Cal.App.4th 654

This important case established that if a board uses any association media – for example, its newsletter, website, or bulletin board – to advocate a position in a campaign, election, amendment to governing documents, or any member vote, Civil Code §1363.03(a) is triggered, and the board must provide equal access to its media to members advocating a different point of view. This drastically affects most associations’ standard practices by expanding the application of election rules to all member votes. Boards must now be very careful in providing information to its members during any vote. Any material or information in association media should not advocate, in any way, any viewpoint or position at issue in the vote. In

particular, the materials should avoid stating that the Board “recommends”, “requests”, or otherwise asks the membership to vote a particular way. If the board does engage in advocacy, they are obligated to provide equal access to any member wishing to present an opposing viewpoint.

SB Liberty, LLC v. Isla Verde Association (2013) 217 Cal.App.4th 272

When the association prevented a member’s attorney from attending an open board meeting, the member – SB Liberty, a corporation – sued, claiming it could designate any person – including its attorney – to be its representative at meetings. The court sided with the association, finding that under the association’s governing documents, only members of the association could attend meetings. Because the Continued on page 8

connect with grie • issue FOUR 2013

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Case Law Wrap Up Continued from page 7

attorney was not a member of the corporation nor authorized to manage its affairs, the association could exclude him. This case reinforces the power of the board to determine how to conduct its meetings – here, by only allowing members to attend and participate. Equally important was the CC&R’s clear definition of “membership” and prohibition on dividing or assigning membership rights. Associations should make sure their governing documents clearly define these rules and procedures. These next cases are unpublished opinions. Although they are not citable or binding precedent, they are helpful in identifying judicial trends and stressing how important it is to have a strong understanding of your association’s governing documents when handling disputes.

W&W Del Lago, LLC v. Rancho Del Lago Homeowner’s Association (2013) Unpublished Opinion

W&W Del Lago sued their association (through its architectural committee) when they were forced to stop construction on their home after they discovered their engineering plans contained inaccurate measurements. The court held that the association’s architectural committee was not negligent in failing to verify the accuracy of the submitted engineering plans or notice a discrepancy between measurements in these plans compared to other plans on file. The court looked to both the Davis-Stirling Act and the association’s CC&Rs, but did not find that the architectural committee owed any duty of care in reviewing the submitted plans. Associations using architectural committees should ensure that their CC&Rs do not include provisions imposing a duty of care on their committee. As long as the committee’s decisions are reasonable, not 8 |

ISSUE FOUR 2013 • Connect with grie

arbitrary, and made in good faith, the association should be protected.

Clear and unambiguous governing documents remain critically important, and it is incumbent on the association and each member to have a strong understanding of them. Gold Strike Heights Homeowners Association v. Financial Pacific Insurance Co. (2012) Unpublished Opinion

An association for a new subdivision sued its developer for failing to build the planned common area clubhouse. Although the developer included the clubhouse when advertising the development, it also provided to all prospective homebuyers a copy of the CC&Rs and a public report from the Department of Real Estate – both of which specifically stated that the clubhouse was not a part of the first phase of development. In addition, the CC&Rs did not obligate the developer to build anything beyond the first phase, and the public report even cautioned that the second phase might never be built. The court found that despite the advertising materials, the CC&Rs were clear, and the developer was not obligated to build the clubhouse. In other words, the buyer’s understanding of the CC&Rs was the responsibility of the buyer, not the seller. Buyer beware!

Noxsel v. Boquet Estates Owners Association (2013) Unpublished Opinion

Noxsel, the developer of the Boquet residential community, was required by a city permit and the association’s CC&Rs to only sell and rent the community’s unattached garage lots to association members. Noxsel tried to sell and rent the garages to the general public, arguing that the buyer/renter becomes an association member in the process. The court rejected this argument, citing detailed communications recording the clear intentions of the city permit and association CC&Rs to limit the garages to existing members. This shows clear and detailed documentation in any dispute can be critical. Even as we prepare to enter the brave new world of the rewritten Davis-Stirling Act, the courts continue to emphasize that certain principles will always be at the forefront of their decisions. Clear and unambiguous governing documents remain critically important, and it is incumbent on the association and each member to have a strong understanding of them. Equally important is the written history of any dispute – detailed communication and documented decisions. Following these ideals is a great start in placing the association in the best possible position to enforce its governing documents and defend against other claims.

Matt Deenihan is an associate attorney at Adams Kessler PLC. He has been practicing for over 7 years and specializes in representing common interest developments as general counsel. You can reach Matt at (310) 945-0280 or mdeenihan@adamskessler.com.


EDITOR’s LINK I want to begin my link by saying that I have had the most amazing two years as your editor of Betty Roth CMCA, AMS, PCAM this informative magazine. As I said last year, the time just flew and the rewards have been great. The credit goes to the committee members who gave their all with every magazine issue. I personally want to thank the committee for making my job an effortless one; DJ Conlon, Lana Hamadej, Robert Riddick, Kimberly Lilley, Nancy Sidoruk, Jan Hickenbottom, Jasmine Fisher, Cang Le, Sheba Yaqoot and Tom Carrasco. I couldn’t have done my best without your best. I will be turning over the editorship to Cang Le who is so incredibly capable that I am confident that the magazine will continue to produce quality, informative articles in the coming year. Again, thank you for the opportunity to work for the GRIE Chapter in such a rewarding way. We had a wonderful Golf Tournament in September at the Canyon Crest Country Club. The Golf Committee did an outstanding job. We also had a great time at the Billiards Tournament which was held at Stix in Rancho Cucamonga. The Billiards Committee really outdid themselves with the Halloween theme and decor. Our Annual TOPS Awards where we honored the members of our chapter who went above and beyond took place on December 13th and was the usual beautiful holiday breakfast that we look forward to every year.

The Business Partner Committee is busy preparing for the Hockey Game event scheduled for January 10, 2014, starring the Ontario Reign. The end of January will bring the PCAM Reception on January 31st to be held at Wilson Creek Winery in Temecula. We are looking forward to the CLAC Legislative Day at the Capitol in April as well as many informative mini trade shows and luncheons throughout the year. This issue presents a series of articles focusing on Legal Updates. All the articles that were submitted are very informative. They touch on defects and disclosures; case law wrap-up; collection myths; hot bills; assessment collections and the new Davis-Stirling and CID Acts. We hope you will find the information in this issue of Connect useful and we appreciate your continued support of the GRIEChapter and CAI. The topic for our next issue is Leadership and Teamwork. We will be bringing you articles on training and leadership for board members; myth vs. reality of being a board member; advice for board member and volunteer recruiting, to name a few. 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 February 1, 2014. 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.

connect with grie • issue FOUR 2013

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By mitch willet

Four Collection Myths & the Truth about HOA Foreclosures Myth

The HOA is responsible to pay the lender delinquent mortgage payments and future mortgage payments that become due while the HOA owns the property. The HOA will be responsible for any future deficiency the lender may sustain if the unit is sold by the HOA to an end user. Lenders do NOT have authority to pursue the HOA for unpaid mortgage payments. The lender’s loan documents do NOT contract with the HOA, and do not contain any clause or statement allowing the lender to pursue the HOA for any monetary damages. The agreement is solely between the lender and the borrower. The lender’s recourse is to foreclose on the property encumbered by their Deed of Trust, much as the HOA did on their assessment lien. The lender can still foreclose on its note, which remains superior to the association’s lien, because it was recorded prior in time. The other course of action for the lender is to pursue a judicial action (as “deficiency judgment” or collecting on a personal

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ISSUE FOUR 2013 • Connect with grie


including amounts owed to the HOA. The association can choose to accept a short sale offer, reject the offer or negotiate the offer. Sometimes a short sale transaction will be resolved as follows: The lender decides HOA is only to receive $2k of a $10k debt. The HOA is hesitant to agree, but understands a new homeowner means new cash flow, and counters at $8k. The real estate brokers involved understand that if the HOA does not agree, escrow will not close and their commission will not be earned. So the brokers, buyer and seller agree they will collectively offer an additional $5k, for a total of $7k. When the HOA agrees to the $7k, the brokers remain limited by the $2k limit imposed by the lender. Confronted with this limit, the brokers, buyer and/or seller sometimes elect to pay the additional $5,000.00 to the HOA directly, outside of escrow. The HOA receives more than was being offered in the short sale transaction dictated by the lender, and the lender is blissfully unaware of the additional amounts paid. Note that when such additional out of escrow funds are discovered, the lender may cancel the transaction. As of the date of this article, we are not aware of any negative impact the above scenario has created for an HOA.

Myth

guarantee) against their borrower based on the borrower’s execution of the promissory note. There just isn’t any clause or statement in statute or federal law allowing the lender to pursue the HOA under the scenarios stated above, although board members and managers often ask their collection professionals to provide it.

Myth

The HOA is required to agree to whatever amount is being offered in a short sale transaction. Remember, in a short sale, the seller is selling the property for less than is owed on it to the lender. Generally, it is thought that the seller does not have any funds to contribute to the transaction and the lender is therefore expected to absorb the big loss. In exchange for this arrangement, the lenders often negotiate the commissions to be paid to the brokers, title company fees, escrow transaction costs and, of course, the amounts to be offered to the HOA. So, everything in a short sale is negotiable –

The HOA is responsible to pay property taxes for the period of time the HOA owned the property via a foreclosure sale. The Tax Collector’s office does NOT have any direct authority to pursue an HOA for property taxes, delinquent or otherwise, or any monetary judgment during the period the HOA owns the property via a foreclosure sale. The only authority the Tax Collector has is against the property itself – to conduct a tax sale of the property for the delinquent taxes. The tax sale does not allow the Tax Collector’s office to obtain a judgment against the HOA. NOTE: Although most county Tax Collector’s offices have a 5 year delinquency policy prior to pursuing a tax sale, Los Angeles County recently applied a 3 year delinquency policy to pursue a tax sale. Also, if the association becomes aware of a tax sale of common area, immediately get your attorney involved.

Myth

An HOA should not foreclose on a property that does not have any equity. If the HOA is not responsible to make payments to any senior lender or to pay property taxes, why should equity have an influence on the decision to foreclose? It shouldn’t! Current economic conditions require HOAs to pursue collection actions much more aggressively than previous years. It is becoming more common for HOAs to foreclose, take title and possession of properties, and rent them out to cover unpaid assessments. When this decision is to be made by the board, equity should not influence that decision. Often, it makes sense to change strategy from trying to collect money, to ending the process quicker so the HOA can put a new homeowner in the property and start receiving assessment payments. We like to use the term, “Stop the bleeding Continued on page 12 connect with grie • issue FOUR 2013

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Four Collection Myths... Continued from page 11

sooner than later.” If you or your board feel badly about displacing an owner, also remember, the homeowner has a 90 day right of redemption after the sale is conducted. Another reason to foreclose is that many homeowners do not believe the HOA will actually conduct the sale, especially if there isn’t any equity. A great motivating tool to compel a homeowner to bring their account current is to serve eviction paperwork. This cannot be accomplished unless the HOA has actually conducted the foreclosure sale and the 90 day Right of Redemption has expired.

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ISSUE FOUR 2013 • Connect with grie

Mitch Willet is President and Owner of S.B.S. Lien Services.


BY John R. MacDowell, Esq.

Hot Bills for 2013 – A Good Year for the Industry L

ast year’s reorganization of the Davis-Stirling Act had a big impact on community associations. This year’s new legislation was more modest, relatively speaking. Nevertheless, the legislature passed, and Gov. Brown signed a handful of bills which will make the work of volunteer association boards and community association managers easier. Moreover, legislators more and more recognize the value and impact of community associations, and, in 2013, looked increasingly to CAI and its California Legislative Action Committee (CLAC) as a resource. Since Davis-Stirling first became law in 1986, it has governed both residential and commercial associations. That will change on January 1, 2014,

when Senate Bill 752, authored by Sen. Richard Roth of Riverside, becomes law. Senate Bill 752 creates the Commercial and Industrial Common Interest Development Act, Civil Code sections 6500 to 6876, which will govern associations with no residential component. The new Act repeats much of the language of re-organized DavisStirling, which will no longer apply to exclusively commercial associations. However, the new statute eliminates many of the consumer protection provisions of Davis-Stirling. Thus: • Commercial projects will not need to make annual disclosures • They will not use the doubleenvelope secret ballot system • Their boards may establish rules without first seeking member

comment, and members may not reverse a rule change • The “one pet” provision applies only to an owner who kept a pet prior to January 1, 2014 • Neither IDR nor ADR are required • An association may (and probably should) designate a representative to receive communications on its behalf The last point will change the way non-residential associations do business. The new Act provides that owners are to send all communications to the president or secretary of the association, unless the association designates someone else, in writing, to receive communications. Most associations Continued on page 14 connect with grie • issue FOUR 2013

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Hot Bills... Continued from page 13

with professional management will likely designate the manager to receive them, so corporate officers will not be burdened with day-to-day correspondence. The California Law Revision Commission (CLRC) drafted language to correct oversights and include amendments to Davis-Stirling which were added after the re-organized Act was passed in 2012 but before its January 1, 2014 effective date. The State Senate approved this language as part of Senate Bill 745, the Housing Omnibus Bill. For instance, the re-organized act failed to include first class mail as a way to provide notice to an association. That omission has now been corrected. In 2013, the legislature amended Davis-Stirling to allow associations holding telephonic general session board meetings to have a representative, who is not necessarily a board member, present along with a speaker phone, at the location designated for the general

session meeting. That provision has been added to the re-organized Act. Senate Bill 822 clarifies a recent addition to the Business and Professions Code, to state that a community association manager is not a contractor, and does not need a contractors’ license, even though the manager may arrange work schedules of contractors and subcontractors. This new law does not expand the scope of a manager’s work; it is intended only to allow managers to do what they have always done, that is, to schedule vendors to perform small jobs. Associations should still hire construction managers, architects, or engineers to manage substantial projects. Traffic violations can present a significant public safety concern in associations with extensive road systems, so some associations contract with the state Highway Patrol to enforce the Vehicle Code on their private roadways. Senate Bill 298 establishes a pilot project in Orange County allowing associations to

contract with the county or city, instead of the Highway Patrol, to have the Sheriff or city police patrol and enforce traffic laws. The bill remains in effect until January 1, 2017. And, finally, Assembly Bill 491 amends the Corporations Code to allow non-profit mutual benefit corporations to take certain actions in the event of an emergency, including natural disaster, an attack on the United States, an act of terrorism, or a state of disaster declared by the Governor or the President. Beyond the particulars of the bills, 2013 was notable in the way the legislature and the CLRC partnered with CAI and CLAC to address the needs of community associations. The varied organizations and agencies that create and influence our state laws don’t always agree, but at least the voice of community associations is being heard in Sacramento.

John R. MacDowell is managing shareholder of the Orange County office of Fiore, Racobs & Powers, A Professional Law Corporation, and is an Orange County delegate to, and Legislative Co-Chair of, CAI’s California Legislative Action Committee (CLAC).

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ISSUE FOUR 2013 • Connect with grie


By Kelly G. Richardson, Esq., CCAL

They’re Here... The New Davis-Stirling and Commercial & Industrial CID Acts

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n 1982’s film “Poltergeist,” one of the most chilling moments was character Carol Ann’s announcement “they’re here.” Although some might regard the two completely “new” Common Interest Development Acts as just as frightening, the prepared HOA manager, director or attorney need have no fear. The new Davis-Stirling CID Act – How new is it? As has been previously discussed in Connect, the new law really isn’t that new. Most of the changes are very technical and will not be noticeable by the average homeowner. Aside from the inconvenience of having to learn all new numbers, there really is not that much that boards and managers will be doing differently. Most CAI law firm business partners are already distributing free conversion charts to help find the

new sections in the Civil Code – Sections 4000-6150. There are a few ways in which associations may wish to start to adapt to the very few significant substantive changes in the new law. Collect consents for e-notice. Begin collecting consents to receive notifications by e-mail. The new law will permit associations to give electronic notices to members who agree to accept such method of communication. In a large association the savings of cutting down on postage and paper could be very substantial, but even small associations will benefit. Encourage members to sign an “opt in” notification. Your association can include it in the next assessment mailing, and should have consent forms available at the management Continued on page 16 connect with grie • issue FOUR 2013

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They’re Here... Continued from page 15

office and at board meetings. Remind owners that this will not only save them space and clutter, but will help keep the budget (and therefore assessments) under control. Focus on your disciplinary hearings. Because the new Section 5855 requires that the board use the disciplinary hearing process for reimbursement assessments, the number of closed session hearings may well increase significantly. Review your disciplinary hearing policies (or create some). If your association has meeting rules, consider adding hearing rules. In order to avoid excessive hearings, consider establishing reasonable time limitations. The law doesn’t give much guidance about how to conduct these hearings, and some reasonable procedures would be helpful to let homeowners know what they should be prepared for if they come to a hearing. Consider adopting

policies regarding the conduct of disciplinary and reimbursement hearings, including a reasonable time limit on the homeowner opposing the discipline or reimbursement item. The “new” disclosure packets. Starting in 2014, the various annual disclosures are organized into two packages, the “Annual Budget Report” and “Annual Policy Statement.” These are collections of disclosures which your association is already required to make, with some minor additional items. The Annual Budget Report is the collection which consists of items which ordinarily would be updated in most years. The Annual Policy Statement consists of disclosures which do not ordinarily change each year. In 2014’s budget season, all associations will need to be distributing the Report and the Statement. If your association has not yet sent out its 2014 disclosures it might be a good idea to use this new format of annual member disclosure now – but it is not required until next

year’s disclosures. Since the Report and Statement are really not new, management firms should not be charging extra for these items. Check the new Sections 5300 and 5310 for the list of which disclosures go in which packet. Correct outdated statutory references. One interesting feature of the new Davis-Stirling is that it will allow boards to amend their CC&Rs and Bylaws to the limited extent of changing statutory references. The board can update CC&Rs and Bylaws so that the outdated Davis-Stirling sections (1350-1379) are updated to the new Civil Code sections (40006150). The new law (at Section 4235) allows boards to make these amendments without a vote of the membership. The statute only allows this very limited amendment – inserting the correct statute numbers – and it should be done in an open board meeting. This is not mandatory, but updating any statute numbers in your governing documents makes

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them easier to follow. Since most of the law firms already have conversion charts, a board could theoretically use a conversion chart and prepare its own amendments. However, consulting your association’s lawyer is a good idea. Also remember that the CC&R amendment must be filed with the County Recorder. A Second CID Act? In addition to its work on the residential CID act, the California Law Revision Commission developed a Common Interest Development Act for nonresidential associations. The bill, 2013’s SB 752, was signed by the Governor and will also become law in 2014. The “Commercial and Industrial Common Interest Development Act” (CICIDA) can be found starting in 2014 at Civil Code Sections 65006876, and applies to associations which do not have a residential ownership. Hotel use is considered “non-residential” under this CID Act. Mixed use associations, in which some ownership interests (typically

condominiums) are residential while others are commercial or industrial, are still controlled by the Davis-Stirling CID Act. The CICIDA is significantly pared down. Many of the homeownership protections found in Davis-Stirling are not found in this law. Here is a quick partial list of familiar Davis-Stirling provisions which are not found in the Commercial and Industrial CID Act: • 30 day rulemaking process • Threshold of $1,800 or one year arrearage prior to assessment lien foreclosure • Immunity of directors and officers if CID carries errors and omissions insurance coverage • Notice and hearing procedure prior to imposing disclipline • Open Meeting Act • Membership election procedures • Limitation on rental restrictions • Reserves disclosures • Annual Budget Report/Annual Policy Statement Here are some interesting Davis-

Stirling protections carried into the Commercial and Industrial CID Act Protection of: • Pets - 6706 (pre-2014 pets) • Non-commercial free speech 6704 • Dish antennae • Electric Vehicle Charging stations • American flag display The CICIDA is much simpler, and obligations on boards and managers are much less. The relocated Davis-Stirling CID Act and the Commercial and Industrial CID Act are improvements. They are both more “user-friendly.” Yes, “they’re here,” but their arrival is good news. Don’t let anybody scare you.

Kelly G. Richardson, CCAL is Managing Partner of Richardson Harman Ober PC and a Trustee of the Community Associations Institute.

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By Laurie S. Poole, Esq., CCAL

Strict Compliance with Legal Requirements is Necessary in Assessment Collections Two recent cases from the California appellate courts emphasized that associations and their collection agents must strictly comply with state law requirements for collecting delinquent assessments. In Multani v. Witkin & Neal (2013) 215 Cal. App. 4th 1428, Afshan and Rahim Multani were owners within the Castle Green Homeowners Association. The Multani’s became delinquent in the payment of their monthly assessments. After the association recorded a lien and notice of default, the association’s trustee, Witkin & Neal, held the foreclosure sale after postponing the original sale date. The deed from the association’s foreclosure was recorded more than 90 days after the sale. After the Multani’s and their tenants were evicted from the unit, the Multani’s sued the association and its debt collectors seeking to set aside the foreclosure. The Multani’s claimed that the association and its agents failed to comply with various provisions of the California Civil Code relating to foreclosures. The trial court granted motions filed by the association and its agents which effectively negated the Multani’s allegations. The Multani’s appealed the trial court’s decision. On appeal, the decision was reversed. Under Civil Code section 1367.4(c)(4) [new 5715(b)], owners have 90 days to redeem property after a non-judicial foreclosure for delinquent assessments. Pursuant to Code of Civil Procedure section 18 |

ISSUE FOUR 2013 • Connect with grie


729.050, following a foreclosure sale that is subject to a right of redemption period, the trustee must “promptly” notify the debtor of his or her redemption rights and the applicable redemption period. The appellate court found that the association and its agents failed to demonstrate that they provided the Multani’s with notice of their right to redeem the property after the foreclosure sale. The association argued that even if it did not comply with the notification requirements, the foreclosure sale should not be set aside since the Multani’s were provided with enough information to independently calculate when the redemption period would expire. The appellate court rejected this argument stating it would be unfair to expect the owners to calculate the redemption period and would permit associations to ignore statutory requirements without consequence. The association also argued that the Multani’s were required to offer to pay the full amount of the debt in

order to set aside the foreclosure sale. The appellate court concluded that a debtor is excused from complying with the requirement to tender the full amount of the debt where the trustee has failed to provide the notice required under Code of Civil Procedure section 729.050. The issue raised in Diamond v. Superior Court (2013) 217 Cal. App. 4th 1172 is whether a lien is invalid if an association does not strictly comply with legal requirements for collection of delinquent assessments. Arlyne Diamond owned a unit within the Casa Del Valle Association. In 2007, the association imposed a large special assessment to pay for roof replacement/repairs. Ms. Diamond was unable to pay the special assessment and she attempted to negotiate a payment plan with the board. The negotiations were unsuccessful and the association initiated foreclosure proceedings on Ms. Diamond’s unit. Ms. Diamond filed a motion claiming the association had failed to comply with the

following four (4) requirements of the Davis-Stirling Common Interest Development Act: 1. To send a copy of the recorded notice of delinquent assessment by certified mail within ten (10) days after recording; 2. To provide a pre-foreclosure notice of Ms. Diamond’s right to demand alternative dispute resolution; 3. To record the board’s executive session vote to initiate foreclosure in the minutes of the next open meeting; and 4. To personally serve Ms. Diamond with a notice of the board’s decision to foreclose prior to filing the lawsuit. The trial court denied Ms. Diamond’s motion, indicating that the association had “substantially” complied with the legal requirements. The court noted that Ms. Diamond was not prejudiced by the association’s admitted failure to comply with the above requirements. Continued on page 20

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Strict Compliance... Continued from page 19

The appellate court reversed the trial court’s decision. The court examined the relevant provisions and legislative history of Civil Code sections 1367.1 [new 5650 et seq.] and 1367.4 [new 5705 et seq.] and determined that the intention was that each requirement must be strictly followed. Managers and boards need to be aware of, and comply with, all of the legal requirements for collecting delinquent assessments. These cases demonstrate that even the slightest mis-step in following the law will result in foreclosure sales that are set aside and liens that are declared invalid.

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Laurie S. Poole has been an attorney with Peters & Freedman, L.L.P. since 1993. Peters & Freedman, L.L.P. has offices in Palm Desert, Encinitas and Orange County. Ms. Poole can be reached at Lpoole@hoalaw.com or

The Magazine Committee is Interested in What You Have to Say!!!

We are looking for authors to submit articles for Connect Magazine. The theme for our next issue is “Leadership and Teamwork” which will feature volunteer recruiting, session planning and strategic planning at the board level. The deadline for submitting articles for the next issue is February 1, 2014. It is very rewarding to have an article published and can also serve for points in achieving certain accreditations. This is also a great way to promote your business. We are also looking for interesting and different cover pictures for our magazine. Please let us know if you are interested in submitting a theme relevant photo for the cover of the magazine. Get published and get noticed! We have a new column inviting comments and feedback, both positive as well as a rebuttal on past articles in the magazine. We will select as many comments as we can for this column. The deadline is also February 1, 2014. If you are interested in submitting an article, our policy and guidelines are available on the chapter website, www.cai-grie.org.

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CLAC Corner

Davis-Stirling 2014: The “Clean-Up” Legislation Delivery. In Davis-Stirling 2014, new Civil Code section 4035 describes the means by which a document can be delivered to a community association. However, AB 805 left out mail from the listed means of delivery. SB 745 amends section 4035, allowing as a means of delivery of a document to an association, “first-class mail, postage prepaid, registered or certified mail, express mail, or overnight delivery by an express service center.” Prospective Purchaser; Rental Prohibitions. Currently, Civil Code section 1368 requires owners to provide prospective purchasers a statement describing any provision in the governing documents that prohibits renting or leasing. In Davis-Stirling 2014, this obligation was expanded to include a statement of the “applicability” of the prohibition. This new addition is now deleted so the statement of applicability is not required.

Votes by Written Ballot SB 745 amends new Civil Code section 4070 so it also applies to membership votes conducted by written ballot. It provides that an action that is required to be approved by “a majority of a quorum of the members” must be approved by “a majority of the votes represented and voting in a duly held election at which a quorum is represented.”

Teleconferences

I

n late August, Governor Brown signed Senate Bill (SB) 745, the “clean-up” legislation for Davis-Stirling 2014. Effective January 1, 2014, Davis-Stirling 2014 is the result of last year’s Assembly Bill (AB) 805, the statutory simplification and recodification of the Davis-Stirling Act. As might be expected with a comprehensive overhaul, AB 805 left unintentional omissions. In addition, AB 805 did not incorporate certain changes made to the Davis-Stirling Act by other 2012 legislation. SB 745 “cleansup” these omissions and inconsistencies. This article provides a brief overview of the effect of SB 745 on Davis-Stirling 2014.

Documents Cancellation Fees. In 2013, the form for billing disclosures changed to prohibit cancellation fees for requests for documents. SB 745 amends Davis-Stirling 2014 to include this change. Conflicts. Davis-Stirling 2014 includes a new section (Civil Code section 4205) describing the hierarchy of governing documents in the event of a conflict among those documents. However, there was confusion about the wording and intent of this section. SB 745 sought to clarify the section’s unintended ambiguity.

Current Civil Code section 1363.05(k) was amended by legislation enacted in 2012 to provide that, except for meetings held solely in executive session, notice of a board meeting held by teleconference must identify at least one physical location “and at least one member of the board of directors or a person designated by the board” who will be present at the stated location. As enacted via AB 805, Davis-Stirling 2014 did not include the italicized amendment. SB 745 “cleans-up” this inconsistency by re-adding the omitted wording to new Civil Code section 4090. For more information about new legislation, including Davis-Stirling 2014, visit the CLAC “Resource Center” online at www.caiclac.com. Among CLAC’s HOA Resource Documents, you’ll find helpful materials including a table for converting existing Davis-Stirling Act section numbers to their Davis-Stirling 2014 counterparts.

This “CLAC Corner” is contributed by Nancy I. Sidoruk, Esq., who is an attorney with Epsten Grinnell & Howell, APC, the 2013 CAI-GRIE legislative support committee chairperson, and one of our two chapter delegates to CLAC. connect with grie • issue FOUR 2013

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CAI Greater Inland Empire’s Newly Elected Board Members By Kimberly Lilley, CIRMS, Berg Insurance Agency & CAI-GRIE President-Elect

In September, the Greater Inland Empire Chapter of Community Associations Institute (CAI-GRIE) elected five board members to three-year terms. Board members of CAI-GRIE are responsible for setting the strategic goals of the chapter. They set the budget, policies of the chapter, and make sure the organization has the staff needed to run smoothly. As PresidentElect of the chapter, it is my pleasure to introduce you to these newly-elected leaders of our organization. Starting close to home, I was elected to my second term, having served previously as treasurer, as well as my current president-elect position. I have been involved with CAI since 2006 and have been honored by the Greater Inland Empire Chapter with Rookie of the Year (2007), President’s Award (2008), Committee Chair of the Year (2009), and Committee Member of the Year

(2010). I work as Director of Marketing for Berg Insurance Agency, and I look forward to serving you as President next year with a goal of providing education and encouragement in the area of leadership development. Also re-elected to the CAI-GRIE Board of Directors is Shelly Risbrudt, the sales and marketing representative for Pilot Painting & Construction, which specializes in community association painting and repairs. She has been there for just over a year and has been in the industry as both a community manager and business partner for 17 years (she says she started when she was 12). She is currently involved with the Manager and PR committees and values the networking aspect of our industry. She is proud of the fact that although many of us are competitors, we all get along!

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Toll Free: 800-345-8866 • Toll Free Fax: 800-262-0973 Email: SSegal@farmersagent.com • www.farmersagent.com/ssegal 22 |

ISSUE FOUR 2013 • Connect with grie


Newly elected to CAI-GRIE is Cyndi Koester, CMCA, AMS, PCAM, the SVP, HOA Division Manager with CommerceWest Bank, a business bank that provides full banking and loan services to HOAs and management firms. Cyndi has been with CommerceWest Bank for a year and has over nine years’ experience in the HOA banking industry as well as being on the management side for over 20 years. Cyndi currently serves on Bowling, Billiards, Business Partners and Managers Committee and volunteers her time to teach the Essentials Course to provide board member education. Cyndi also serves on the CAI National Faculty, Business Partners Council and Foundation for Community Association Research Finance Committee. Greg Borzilleri, Director of Marketing/Estimator for PCW Contracting Services began his career in the construction industry in 1996. In 1998 he worked as a residential union sheet metal installer where he became one of the youngest foreman in charge of running new construction multi-family projects in the company’s 40-year history. In 2008, he was hired at PCW Contracting Services, a full-service general and roofing contractor who has been serving the CID industry since 1989. He often writes articles for industry publications and currently serves on the Education Committee. He was instrumental in re-establishing and co-chairing the two-time committee of the year, the Business Partners Committee, where he continues to serve as a member.

transactional matters like document interpretation/enforcement, director duties/responsibilities, meetings, elections and corporate governance issues. She also directs the firm’s practice development efforts, editing E-NEWS from EG&H, co-editing the Community Association Law Resource Book, and handling responsibilities related to legislative activities, educational publications, programming and practice growth. Involved with CAI-GRIE for 12 years, Nancy has served as its legislative support committee (LSC) chair, CLAC liaison, and is currently a CLAC delegate and member of its Legislative Strategy & Research Committee. She received the CAI-GRIE President’s Award for her 2010 LSC efforts and was the first CLAC Volunteer of the Year. Under Nancy’s leadership, the LSC received a national Chapter Management & Development award in 2013. She has spoken at various educational programs including Legislative Day in Sacramento and CAI Essentials. A frequent author and active magazine committee member, Nancy

twice served as our magazine editor and was recognized as 2003 Committee Chair of the Year. For 2014, Nancy will be serving as our President-Elect, and I look forward to her vision for our chapter in 2015. Kimberly Lilley, CIRMS, is Director of Marketing for Berg Insurance Agency and can be reached at Kimberly@BergInsurance.com

Last, but not least, Nancy I. Sidoruk is an attorney with Epsten Grinnell & Howell, APC, focusing on

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U

The Sustainable Landscape Sustainability is derived from the Latin word sustinere, meaning to uphold. It also means meeting the needs of the present without compromising the future. When applied to landscaping, sustainability is synonymous with staying within the carrying capacity of the natural environment while reducing human impact. It is also the balance between

ntil recently, America’s love affair with the turfgrass lawn has been deeply rooted in the psyche of the California landscape. With the rising costs of water and the narrowing of water resources, the hegemony of turf as a defensible landscape design element is being challenged. Sustainable landscape design, also referred to as xeriscaping, has been practiced for many years throughout the state and has now established a presence in our community. The difference between what historically has been designed and what is now being installed is the substitution of drought tolerant plant materials for the narrow turfgrass parkway strips. A waterefficient drip irrigation system is also being used to water these areas, replacing the less efficient spray heads. Further, the majority of the new landscaping is irrigated with reclaimed water, thus adding to overall cost savings. A sustainable landscape can save money, conserve resources, reduce waste, eliminate pollution, and minimize the use of chemicals. Solutions to a sustainable landscape include: • Selecting the correct plant materials and the use of mulch to reduce watering, thus lowering your water bill and maintenance costs. • Installing a water-conserving, efficient irrigation system to cut down on your watering needs and reduce water waste. • Reducing turf areas with the use of drought tolerant and native plant materials, minimizing the need for fertilizers and other pest control chemicals. • Minimizing impermeable surfaces to reduce storm water runoff from entering the storm drain system. • Detaining storm water runoff on site by constructing a “rain garden” putting more water back into the ground and contributing to the recharging of aquifers. • Reducing maintenance costs and waste through proper landscape design, practices, and plant selection. To learn more about sustainable landscaping and storm water runoff reduction, check out the Slow the Flow video available on the California State Water Resources Control Board website at www.waterboards.ca.gov/stormfilm/.

an attractive design, local climate, and environmental factors while requiring minimal resource input. Sustainability is no longer just trendy, but more and more becoming law. 24 |

ISSUE FOUR 2013 • Connect with grie

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.


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