ECHO Journal - June 2013

Maintenance Do’s and Disasters p.16

New Davis-Stirling…

What You Need to Know p.22

Update Your Governing Documents

A Construction Manager Looks at Reserve Studies

p.30

p.40

Reserves Fall Short!

p.44

June 2013

Serving Community Associations

echo-ca.org

5 REASONS Your Association Needs ECHO p.10

ECHO 1602 The Alameda STE 101 San Jose, CA 95126 Change Service Requested

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CONTENTS

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8 22 44 4 echo-ca.org

16

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16

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Top five reasons to join ECHO

Stay compliant with current law, and protect your association from lawsuits. Get the best professional advice on hundreds of topics, with the click of your mouse. Find the right professional for your job, in your area. Interact with other association board members, professionals serving HOAs, and hear from experts on the issues that matter most to your community. Get involved with legislation affecting your community.

Maintenance Do’s and Disasters

Several examples/anecdotal stories of situations where deferred maintenance caused major failures of big building components, with the moral of the story that pennies invested well save thousands of dollars later on.

New Davis-Stirling…What You Need to Know

The California legislature last year completely re-wrote the statutory framework that dictates how HOAs must operate; most describe the change as “non-substantive”, meaning that the rules didn’t change, just the organization of the various requirements.

But wait…there’s more to know about this set of changes than just cut-and-pasting old provisions into new sections.

30

Update Your Governing Documents

40

A Construction Manager Looks At Reserve Studies

44

Now that we have a new statute, with all new section numbers, perhaps it’s time to update those old and now seriously out-ofdate governing documents for your association. There are lots of reasons, and much to be accomplished by getting ahead of the January 2014 implementation date for “New Davis-Stirling.”

It is a common occurrence to discover that an association’s reserve study is inaccurate and incomplete. They may satisfy the technical requirements of Davis-Stirling, but they do nothing to satisfy the board’s need for a reliable planning document. Here we examine planning gone bad and suggestions to keep your association from a special assessment.

Reserves Fall Short!

Community Associations are going broke. They are running out of cash. Borrowing from reserves to pay operating expenses has left reserve accounts seriously underfunded. There will not be enough money to do necessary repairs when the time comes. As a consequence, associations are resorting to bank loans and special assessments to fill the gap. How do we know this? Check the survey.

DEPARTMENTS

6

News from ECHO

37

ECHO Event Calendar

38

ECHO Volunteers

51

Advertiser Index

52

ECHO Bookstore

54

Legislation at a Glimpse

The ECHO Journal is published monthly by the Educational Community for Homeowners. The views of authors expressed in the articles herein do not necessarily reflect the views of ECHO. We assume no responsibility for the statements and opinions advanced by the contributors to the magazine. It is released with the understanding that the publisher is not engaged in rendering legal, accounting or other professional service.

If legal advice or other expert assistance is required, the services of a competent professional should be sought.

Acceptance of advertising does not constitute any endorsement or recommendation, expressed or implied, of the advertiser or any goods or services offered. We reserve the right to reject any advertising copy.

Copyright 2013 Educational Community for Homeowners, Inc. All rights reserved. Reproduction, except by written permission of ECHO is prohibited.

The ECHO membership list is never released to any outside individual or organization.

ECHO 1602 The Alameda, Suite 101 San Jose, CA 95126 408-297-3246 Fax: 408-297-3517 www.echo-ca.org info@echo-ca.org Office Hours Monday-Friday 9:00am to 5:00pm Board of Directors and Officers President David Hughes Vice President Karl Lofthouse Treasurer Diane Rossi Secretary Jennifer Allivato Directors Jerry L. Bowles Stephanie Hayes Robert Rosenberg Brian Seifert Steven Weil

John Garvic David Levy Kurtis Shenefiel Wanden Treanor

Executive Director Brian Kidney Director of Marketing & Membership Jennifer Allivato Director of Communications Tyler Coffin Legislative Consultant Government Strategies, Inc. Design and Production Design Site ECHO Mission Statement Serving Community Associations

June 2013 | ECHO Journal

5

news from ECHO

Welcome to the New ECHO. This magazine is being sent to every Home Owners Association in Northern California, because we think it’s important for HOA Board members to know what their responsibilities are, and how ECHO can help you manage them.

ECHO is THE resource for HOA Board education and resources, and has been serving communities for over 40 years. With this issue of the ECHO Journal, we unveil the next generation of our organization, and how we can be of service to you.

The “Executive Council of Home Owners” is now the “Educational Community for Home Owners”; we’ve always been about education and community, and we thought it was important to update our message to reinforce that notion.

The ECHO Journal has a new fresher look. And our website has been completely overhauled to give you the information you need, when you need it, in the level of depth you want. We’ve asked our extensive professional network of HOA experts to help you with all your questions. And finding that specific statute that dictates how you need to operate has never been easier. We also bring you the latest news and information from Sacramento about pending legislation and how you can get involved. You can also look through our professional directory to find the advice and services you want, from vendors operating in your neighborhood.

If your association is not a member of ECHO, try us out for 30 days FREE! Just visit the website and sign up! And if you are a member, but haven’t yet registered to access the website, get signed in! www.echo-ca.org.

For our loyal members, know that our commitment to you and our level of service is expanding to meet your changing needs. And your association membership now includes ALL your homeowners, because we believe everyone in every member community should be aware and involved. Today’s homeowner is tomorrow’s Board member. The better educated your community is, the healthier and happier it will be.

We will still publish the ECHO Journal, and mail 5 copies to your association Board members; but you can also access the magazine online. We will continue to conduct educational seminars, now more often and in more places, so you can get that in-person information you need. And our new website will not only be the hub of information and advice you require at your fingertips, but it will serve as a “Community of Communities” giving your association the ability to share your experiences with other associations.

So, join us in helping to make California communities thrive!

Best, Brian Kidney

Executive Director

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2013 ECHO educational calendar

ECHO Seminars Now there’s one near you.

Santa Rosa

Only four Educational Seminars remain for 2013, including our signature Annual Seminar and Trade Show: ECHO San Jose. Don’t miss an opportunity to get the education you need with guidance from some of California’s top HOA attorneys and professionals.

Sacramento

Marin Walnut Creek Oakland San Francisco

San Jose

Jun. 15

Aug. 24

Sep. 7

Walnut Creek Education Seminar

ECHO San Jose Annual Seminar and Tradeshow

Sacramento Educational Seminar

Embassy Suites, Walnut Creek

San Jose Convention Center, San Jose

La Rivage, Sacramento

Sep. 21 Monterey Educational Seminar

Campbell Santa Cruz

Fresno Monterey

Register today!

Online: www.echo-ca.org

By Phone: 408.297.3246

Hilton Garden Inn, Monterey

June 2013 | ECHO Journal

7

Join us at the

Walnut Creek Educational Seminar Saturday, June 15, 2013 NEW LOCATION

8:30 a.m.–12:30 p.m.

Embassy Suites 1345 Treat Boulevard Walnut Creek, CA 94597

Seminar Agenda

Price: $59 Members $69 Nonmembers Register online at www.echo-ca.org or fill out the form below.

Your Real Job: Managing Maintenance, Repair, and Replacement Rob Rosenberg & Lisa Esposito

Your Governing Documents Stephanie Hayes, Esq.

Working Together as a Board, Coming to Consensus Beth Grimm, Esq.

Yes, reserve ______spaces for the ECHO Walnut Creek Educational Seminar.

Amount enclosed: $__________ (attach additional names) Name: Email Address: HOA or Firm: Address: City:

Sponsors:

State:

Zip:

Phone: Visa/Mastercard No.

Exp. Date:

Signature: Return with payment to: ECHO, 1602 The Alameda, Ste 101, San Jose, CA 95126 Orders will not be processed without payment in full. Fees for cancelled registrations will not be refunded. Telephone: 408-297-3246; Fax: 408-297-3517

It’s finally here. Read. Watch. Learn.

Visit www.echo-ca.org today.

ECHO’s new website is up and running. For those of you who provided your email address to ECHO, you should have received instructions on how to login and take advantage of our new system.

If you have not provided your email address to ECHO, here’s how you gain access to our members-only information:

If you are the president of your association…

You are the “primary contact” for your association and have permission to manage your association’s members and account information.

If you choose, you can designate your manager to perform these tasks. You may also assign the primary contact role to another board member in your association. If you do not already have login information, please contact ECHO and provide your email address, name, and association name.

Email: newaccount@echo-ca.org Call: 408.297.3246 x21

If you are NOT the president of your association…

Your association president is automatically assigned the “Primary Contact” role. Contact your president and ask them to add your email address to your account along with a temporary password. If your association president is unavailable, contact ECHO and provide your email address, name, position within the association (board member, owner, etc.) and association name.

Email: newaccount@echo-ca.org Call: 408.297.3246 x21

5 REASONS

Your Association Needs ECHO

By Brian Kidney

4 05 02

Managing an HOA is difficult. Doing it alone is impossible. With ECHO, you’re not alone!

Did you know that there are over 45,000 homeowners associations in California? And some of them face the same challenges you do, and have figured out how to move forward. ECHO is a community of associations committed to supporting each other and improving HOA life in California. We were founded by board members like you: committed, concerned, and looking for answers.

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45,000

homeowners associations in california

June 2013 | ECHO Journal

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Every year,

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he blogosphere has been burning the up lately overCalifornia a new law that some Community Community Association Association Loans Legislature commentators say might require Cali"MM UIF SJHIU UPPMT GPS ZPVS OFYU QSPKFDU All the right tools for your next project. fornia community association rewrites the rules formanagers to have a General Contractor’s liyour HOA. ECHO gives How Howwill willyou youfund fund your your next next community community project? cense to perform their jobs. Since Get you a voice.

Getthe thejob jobdone done right right with with the the Community Community property managers can be said to Association AssociationLoan Loan toolkit. toolkit. You’ll You’ll get get custom “overseeâ€? bids for construction projects financing financingthat’s that’sperfect perfect for for your your budget budget and your Everything changes inthat January. it has been suggested they You might community. community. probably know that the Davis-Stirling fall within the expanded definition of Act—the statute that dictates how all YourCommunity CommunityAssociation Association Loan Loan Your “consultantâ€? which was added to the California homeowners associations toolkitincludes: includes: toolkit basic statute by must contractor’s operate—haslicensing been completely • Competitive interest rates t $PNQFUJUJWF JOUFSFTU SBUFT 1 Assembly Bill will 2237. • Flexible payment plans rewritten, and be effective January 1, t 'MFYJCMF QBZNFOU QMBOT California Business and Professions • Innovative loan structures t *OOPWBUJWF MPBO TUSVDUVSFT • Fixed rate loans t 'JYFE SBUF MPBOT Code Section 7026.1(b)(1) defines • Non-revolving lines of credit t /PO SFWPMWJOH MJOFT PG DSFEJU who must have a General Contractor’s ur aswebsite “Bâ€? license follows: includes Getthe thecash cash you you need need today. today. all the consultant news youtoneed “Any person, an Get Jack V. Brandt CMCA AMS +BDL 7 #SBOEU $.$" ".4 owner-builder, firm, association, to know about what theorganRegional Account Executive 3FHJPOBM "DDPVOU &YFDVUJWF ization, partnership, business trust, cor510.921.0124 Member FDIC • Equal Housing Lender Equal Housing Lenderlegislature is up to, and 510.921.0124 .FNCFS '%*$ t &RVBM )PVTJOH -FOEFS Toll Free 866.800.4656, ext. 7579 poration, or company, who or which National Corporate Member of 5PMM 'SFF FYU National Corporate Member of jack.brandt@mutualofomahabank.com Community Associations Institute how you can participate jack.brandt@mutualofomahabank.com Community Associations Institute undertakes, offers to undertake, purports undertake, in to the debate.purports to have the capacity to undertake, or submits a AFN44691_0412 "'/ @ bid www.echo-ca.org to construct any building or home improvement project, or part thereof.â€?

AB 2237 added subsection (2) which states that a “consultantâ€? is someone who: (A) Provides or oversees a bid for a construction project; or (B) Arranges for and sets up work schedules for contractors and subcontractors and maintains oversight of a construction • Detailed Financial Reporting • Short Sale Negotiations project.â€? • Lender Servicing and Collection • Bankruptcy Monitoring Question: “These sound like tasks • Personal Obligation Program • Online Case Set Up that a community manager might perAND MORE . . . form for their client associations during construction projects so why don’t Phone (408) 363-9600 • Fax (408) 225-8864 • Toll Free (877) 363-9600 • ContactUs@asaspcollect.com they tohelping be licensed under the 2014.need We are our HOA members new law?â€? prepare for the changes. But did you Answer: The new subsection modiknow that there are routinely over a fies 7026.1(b)(1) a further dozen bills activeby inadding the California 2 does legislature of that mayaaffect how your definition what “consultantâ€?

Professional Service Delivered Personally association operates?

ECHO and its the but it does not remove or change contract advocate work tirelessly ( r "" $ #' # "

other qualifying language in thattosame ( # # $"# r !% ensure that your rights are protected section which defines a “contractor� as ( #r & ! ! r #! & $ and your concerns addressed. Our ( W " !% # ! #

website includes all the news you need $ # " to know about what the legislature is ( r "" # " W 1up ABto,2237 codified California Business andishow you as can participate in ( ! ' !% and Professions Code Section 7026.1 (b)(2). the debate.

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ACE Property Management, Inc.

Management Service Financial Service Customer Service ACE Property Management, Inc. 1625 The Alameda, Suite 917, San Jose, CA 95126 Phone: 408-217-2882 Fax: 408-886-9474 Email: Info@acepm.net

12

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2 The word “consultant� as used in the statute refers to and modifies the phrase, “consultant to an owner-builder� found in Section 7026.1(b)(1) May 2013 | ECHO Journal

You know what’s in your budget.

ECHO shows you what’s missing.

03 04 05

Here’s what you probably already know: the Davis-Stirling Act requires associations to conduct a Reserve Study every three years. That study analyzes your association’s major components (e.g. roofs, pools, etc.), predicts how long they will last, and how much they will cost. The study also provides a recommended “reserve contribution” to stay ahead of those costs.

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little education could mean the difference between a bill for $20,000 and a small monthly increase of $15.

But here’s what you may not know: simply complying with the statutory requirements WILL leave your community short! Did you know your association is not required to look on the roof or in the crawl spaces to see if there is dry rot or deterioration? Or that some reserve studies use Google Maps to view your buildings? Did you know that your association is not actually required to fund its reserves in order to pay to replace decaying building components?

The study you purchase may be cheap, and it may comply with the law, but you could have a disaster on your hands. Let ECHO break down the complicated math and expose the missing parts. A little education could mean the difference between a bill for $20,000 and a small monthly increase of $15. ECHO looks beyond what the law requires to help you understand what you should be doing.

June 2013 | ECHO Journal

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A single lawsuit can crush your association.

ECHO helps keep you current, compliant, and out of court.

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Sealed ballots, annual disclosures, meeting agendas, hearings, 30-day notices, collections policies – all burdens of association living, and all required by law. We understand that perfect compliance with the law feels impossible. But we also know what happens when you don’t comply: failure to follow the law, in its smallest details, is an invitation for litigation. And litigation can turn your community into a debtor’s prison, with the association coffers drained to pay for a lawsuit and lawyers’ fees.

ECHO takes the mystery out of compliance. Get to know the rules, and learn how to make them work for you and your neighbors. Good policies combined

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with open access to information and decision-making can free your Board to plan and act for the community without fear of reprisal.

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E

CHO takes the mystery out of compliance. Get to know the rules, and learn how to make them work for you and your neighbors.

ECHO is your HOA’s community, library, and champion. Use us!

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ECHO offers a huge variety of tools to learn, socialize, and to advocate for your community. See how we reach out to our members, and to your neighbors.

The ECHO Journal: 40 years of professional guidance.

The ECHO Journal brings you monthly articles with in-depth discussion of contemporary issues facing California homeowners associations. We vary the article content to ensure we cover a bit of something that everyone can learn from.

And we feature the best experts in the industry, so you know you can rely on their advice. During the legislative year, we share the most current status on bills affecting HOAs, along with ECHO’s position.

We update you on our Seminars and other important events, to which you are always invited. And our corner bookstore brings you the best in association management

guidance, at discounted prices. The Journal also links you to professionals who are eager to share their expertise with you.

The ECHO Website: instant information, instant community.

The ECHO website, www.echo-ca.org, gives you immediate access to articles, legislation, video, upcoming events, and more. Read the ECHO Journal in electronic form, and select from more than 100 issues, all searchable via our index. Or search for brief answers to your questions through keyword and topic searches. Want to know what laws apply to a particular subject? We have all the codes relevant to HOAs searchable on our site, with expert interpretation right on the same page. Our HOA Advocacy page is updated daily, and provides the latest news, insights, position papers, and suggestions on contacting your legislators to voice your opinion. Or if you prefer inperson instruction, view our upcoming educational seminars. Find the speakers and topics important to you and plan ahead to attend. And coming soon will be our very own HOA social network,

where you can share experiences to gain new insights from owners in associations just like yours. Securely manage your membership, and start growing your community.

ECHO Regional Seminars and Trade Shows: in-person training.

In 2012 ECHO hosted an Annual Seminar and five half-day Regional Educational Seminars. In 2013 we have expanded to two trade show size Annual Seminars, eight half-day Regional Educational Seminars, and two San Francisco luncheons. On August 23, 2013, we will host our first ECHO San Jose Annual Seminar and Trade Show, featuring over a dozen of the industry’s top experts discussing a wide array of topics, along with over one hundred professional vendors showcasing their services and eager to talk with you to help solve your issues. Stay tuned for 2014. We’re sure to have a seminar near you. Find our event schedule is in every ECHO Journal, or on the website along with easy online registration.

trial membership, and let us show you how your association can benefit from ECHO. Sign up today at www. echo-ca.org.

O

ur HOA Advocacy page is updated daily, and provides the latest news, insights, position papers, and suggestions on contacting your legislators to voice your opinion. Visit today at www.echo-ca.org.

ECHO is your community! Please look over our resources with a FREE 30 day

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focusbusinessbank.com 10 Almaden Blvd, Suite 150, San Jose, CA 95113 408.288.5900

Member FDIC, Equal Opportunity Lender

June 2013 | ECHO Journal

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Maintenance do’s and

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disasters The following article is a composite of experiences from members of the ECHO Maintenance Resource Panel (MRP) of actual events.

a long time ECHO MRP member and current chair, I have listened to my colleagues tell of disastrous events that have occurred from complexes thinking they are saving money by deferring maintenance.

I am currently managing several projects in the Bay Area and three of them have experienced excessive decay repairs well beyond the intended budget. In one, the scope of work included balcony repairs at 112 locations for about $500,000. Once we began removing the components we found massive decay in major structural members that forced us to perform repairs including interior repairs in several units. The price tag reached $1,300,000, and is still climbing.

As

June 2013 | ECHO Journal

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At another project, also balcony repairs, the original contract price was $163,000.

That has now more than doubled, including having to rebuild bathrooms as the framing was decayed to the fixtures. And the last one mentioned is a 61 building simple wood trim repair with some storage door replacement and stair landing repairs all in preparation for new paint.

The project cost also started at $500,000.

We are not yet complete and the current cost is about $1,200,000 with all of the decay repairs including interior repairs.

Some of these issues are from poor initial construction, but the majority are from deferred maintenance. Some of these CID’s have to drain their reserves to pay for the repairs. There is no substitute for routine, complete inspections and annual maintenance and repairs to keep the “Big One” away. are going to paint the outside of the buildings, but have a split piece of siding that needs replacement, and, there are a few pieces of trim that look weathered. Let’s get the painter to include some minor siding and trim replacement in his painting bid.” That’s how it starts, with some minor trim and siding replacement folded into painting the exteriors. However, that is only the tip of the practices. iceberg. These include dishousing

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crimination by the denial inked of a dwelling With the painting contract and the to a person of race, the color, reliwork started,because we first removed weathgion,trim sex,and familial status or national ered cracked siding.

What weorifound much more thandiscrimination siding and trim gin. It is further prohibits damage.

With the water exposure on these bases in the provisioncontinuing of servunseen for years,in the rot has alsowith spread ices or facilities connection a into the structural plywood sheathing dwelling. Discrimination is defined to (required for earthquake bracing of the include a refusal to make reasonable building), and the wood stud framing. What accommodations in rules, policies, started out as a simple painting project, practices or services, when such accomwith some minor material replacement, modations may requiring be necessary to afford is now a project additional such personshoring, equal opportunity to use demolition, structural replacement, and removal and(42 replacement of and enjoy a dwelling.

U.S.C. Secwindows and interior wall finishes. tion 3604) The statute further prohibits discrimination by refusing to alDuring normal maintenance, look for low a handicapped person, atsiding that unsealed joints between trim, and otherexpense, materials,to trim overlaid and in person’s make reasonable direct contact with the materials below, modifications of existing premises necand thetolack of flashings to directof water essary afford full enjoyment the to the exterior.

Staining below joints on premises. the underside of trims can indicate water The New Regulations traveling behind the trim. Early detection Octoberof7, 2011 new regulations andOn correction the cause of hidden water became effective to guide DFEH to proceintrusion can reduce the damage dures. See framing California underlying andAdministration the cost of repair.

Code, Sections 10035–10066. Certain changes made by regulations which facilitate the DFEH administrative process include the following:

“The underside of my balcony is stained…can you get someone to clean the stucco?”

We have included cleaning of the stucco soffits for several years, often power washing or scrubbing the soffits, and painting on regular intervals. However, we never investigated the source of the staining, until now. With our concrete decks, there is no indication from the top that water is leaking into the deck system.

The waterproof membrane installed below the concrete is not visible and gave us no clue to its failure.

During normal maintenance, look for unsealed joints between trim, siding and other materials, trim overlaid and in direct contact with the materials below, and the lack of flashings to direct water to the exterior.

When we noticed new cracking on the concrete decking and the stucco soffit below, we hired a contractor to patch the cracks. During the patching, he removed some of the cracked stucco below the deck and found the framing completely rotted away, with the plywood deck (under the concrete) hanging by threads.

Even worse, the decks were supported on cantilever beams that extended back into the living room for support. These beams now needed replacement, and to get the beams out, the ceilings of the first floor of the homes have to be removed. This requires moving all the owner’s furniture and belongings, shoring of the ceiling, replacement of some of the electrical wiring to access the beam, and repair of the home interior.

During routine maintenance, look for stains on the underside of decks, on related framing, or on walls or other items below the deck not normally exposed to direct water. Brownish staining can indicate water traveling past an asphaltic membrane that is typically used on decks, carrying the oils in the

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June 2013 | ECHO Journal

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membrane materials with it. If identified earlier, repairs to the system can be completed before the framing is compromised, drastically reducing repair costs. board member recently lamented that while his Mountain View association had done everything right six years ago when budgeting for painting of all the common area exterior surfaces according to his reserve study, something had gone awry.

A

When the complex re-bid for painting just the trim this year there were no funds allocated for the $35K worth of damage to the south-facing fascia, siding, and horizontal caps on the wooden porch railings, discovered while prepping the units for painting. To make matters worse, seventeen of the varnished front doors needed to be stripped and stained to the tune of $6K, bringing the total to $41K of expenses not accounted for in the association’s reserves. This director wanted answers: Was the previous paint job sub-par, or was the reserve study in error regarding proper paint cycles?

The answer, as it turned out, was neither.

The association had neglected to perform any maintenance on the coatings system

Component Reserve Analysis and Construction Project Management

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During routine maintenance, look for stains on the underside of decks, on related framing, or on walls or other items below the deck not normally exposed to direct water.

during the past six years, causing the various substrates to fail prematurely at locations experiencing extreme conditions. For example, the fascia – painted a dark accent color – being subjected to heat absorption on south-facing elevations, developed minor cracking after repeated expansion and contraction of the wood. An accelerated maintenance schedule spelling out painting the exposed fascia every three years instead of six would have prevented these cracks from increasing in width and allowing water to penetrate and destroy the wood.

Likewise, the siding, wood caps, and 12926 anddoors 12926.1.

Thesehave definitions varnished all would benefitted from extra attention Major between are broadly construed. lifethe activimajor painting phases.

Siding should ties include physical, mental and social be repainted when begins toChronic check, to activities, as well asitworking. prevent delamination; wood caps should or episodic conditions are covered as be inspected annually, since latex proddisabilities. A few examples of physical ucts do not perform well on horizontal and mental recognized surfaces; anddisabilities varnish exposed to theby DFEH include heart disease, multiple sun should be recoated every one or sclerosis, two years.HIV-AIDS, cerebral palsy, post-traumatic stress disorder and cliniThe price tag for the additional maintecal depression. nance painting and caulking would have In less general, requires an acbeen than the $8Klaw spread out over six commodation when it imposes no funyears, if the painter had been employed damental alteration topricing the nature of in the off season when is much lower.

In otherorwords, the association the program undue financial or adcould have saved $33K,For or 80%, if a if a ministrative burdens. example, comprehensive maintenance painting mobility impaired resident has a van program had been implemented! with a wheelchair lift that cannot operate in the garage due to physical conA good painter reports damage found while working on be someone’s property, straints, it would a reasonable rebut he shouldn’t spend more time writing quest for that resident to be granted an than painting! Onfor a job a couple yearsaccommodation parking in of a near ago our project foreman was horrified to by common area parking space despite discover that our pressure-washing had restrictions or rules that would otherblown numerous holes in the thin veneer wise prohibit granting such awood permit. remnants of termite infested trim.A

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May 2013 | ECHO Journal

There was so much damage, in fact, that he put down his pad and pen, and began taking pictures. His crew was unable to continue working until the next year after the construction repairs were completed.

The first day on a new project can be challenging. For instance, consider day one on a recent job in Milpitas. While inspecting a chimney, a workman fell through the roof and put his foot through a living room ceiling! On the other side of the building a workman fell from a 2nd story balcony. He was leaning on a wood railing so rotten that the entire assembly broke free of the deck and crashed to the ground. Fortunately, nobody was hurt during the mishaps, but the job had to be halted while the whole roof and rest of the decks were inspected.

2010, I was asked by a 100 unit condominium HOA to come out and assist in color selection of paint for their homes. As I walked the property, it was apparent that any kind of color or paint, for that matter, would not improve the overall appearance of the property.

The property was suffering from serious wood rot. While a certain amount of deterioration happens naturally, regular maintenance does not, and if impleIf the can Legislature intended to create mented, help to prevent further To this day, theycontrachave not arepair new costs. category of licensed painted aswho the costs to repair the wood tor—one “oversees” construction, damage have been exhaustive. To help but does not perform or propose to protect your home, remembering a few perform work of construction— “do’s” willahelp with your paint and something like the original version of home’s life. Do remember to routinely the bill the would havesurfaces. been adopted inspect exterior Stucco,inconcrete and masonry should be examstead of the very narrow amendment ined for any sign of cracking and that we have. So, unless the community openings. Wood trim and siding should manager or his or her company is perbe examined for checking, cracking, forming, or offering perform a work splitting and warping.to Metal should be of construction, do not a examined for rustthey deposits.

Doneed remember to regularly clean4exterior painted contractor’s license.

This same analysis surfaces with the use of a garden hose applies to construction managers hired andcommunity spray nozzle or powered They pressure by associations. do washer with some warm water and soap not need to have a General Contracsolution. Do remember to treat mold and tor’s license unless they propose to or mildew with readily available commerundertake to do theDo actual work or cial grade removers. remember to look for andofremove any presence of some part it.5 efflorescence using a stiff wire brush.

Having a sound coat of paint not only gives your home the possible About the Authors: Tylerbest Berding, Ph.D., J.D. appearance but can help to avoid is a founding principal of the Berding|Weil law costlyJulia repairs. firm.

Hunting, M.S., J.D. is a licensed Pro-

In

fessional and Structural Engineer and an attorney at Berding|Weil.

ECHO Journal | May 2013

• Remember to routinely inspect the exterior surfaces.

• Remember to regularly clean exterior painted surfaces with the use of a garden hose and spray nozzle or powered pressure washer with some warm water and soap solution.

• Remember to treat mold and mildew with readily available commercial grade removers.

• Remember to look for and remove any presence of efflorescence using a stiff wire brush.

may not be preventable, but not all preventive maintenance plans need to include a cost to the complex.

Property managers can almost always contract a qualified tow company to install 17 X 22 inch signs at each entrance, and be prepared to remove obstructive vehicles to the tow company storage yard at no cost. Every property manager has had a pavement job with vehicles in their way, that complain because  residents  people park in their reserved stall, and  even  a few properties have been fined by thefire department for not keeping the  fire lanes clear for emergencies. Your  preventive maintenance program needs  to include a qualified tow company, in    contract, with signs posted at all times.  

Disasters

 As  you can see from construction to towing, committing to a maintenance program is the answer to minimizing   major costs. In construction, regular  inspections followed by maintenance  and repairs should keep the “Big One” at bay.  Please, don’t let your complex be the subject of another MRP article.

  

June 2013 | ECHO Journal

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The New Davis-Stirling Act: Get Ready!

By: Sandra L. Gottlieb, Esq. & W. Alexander Noland, Esq. of SwedelsonGottlieb, Tracy R. Neal, Esq. of Association Lien Services 22 echo-ca.org

T

he Davis-Stirling Common Interest Develop Act (commonly referred to as the “Davis-Stirling Act”) is

the primarily set of laws that govern common interest developments and homeowners associations in California. This set of laws was enacted in 1985 to establish a unified statutory framework that regulates the governing bodies for all types of common interest developments in California. Throughout the past 25 plus years, the DavisStirling Act has experienced numerous amendments, and effective January 1, 2014 the implementation of a complete renumbering and reorganization of the DavisStirling Act will take place (the “new” Davis-Stirling Act will be codified in California Civil Code Sections 4000 through 6150). Much has already been written about the renumbering and reorganization of the existing provisions in the Davis-Stirling Act. The focus of this article is to address some of the key substantive changes being made to the new Davis-Stirling Act and highlight how associations should best handle these changes.

June 2013 | ECHO Journal

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he intent of the new Davis-Stirling there many choices,issimilar items Actare and its revisions to make the law more user/consumer friendly, and by different brands on the market but easier to read and understand.

Some of unless you take time to do the research the organizational changes to the new on the different features and benefits Davis-Stirling Act you include Civil available to you, mayshorter just ‘get what Code sections, a separation and regroupyou pay for’. ing of subjects and the inclusion of How does this apply to professional standardized terminology. specifications? Due diligence and One important area aofjob change under the home work equals well done. new Davis-Stirling Act centers on the Some of the industry paint manufacestablishment of standardized rules of turers offer complimentary services innotice and delivery that an association cluding specification forfollow.

Homewriting to and its members are required owner Associations.

Paint specifications The new Davis-Stirling Act differentiates offer a professional’s between notices given best to anrecommenindividual dation and a comprehensive descripmember (Section 4040) from that of notices to the entire membership tion forgiven a particular job. A specification as whole (Section 4045).

With respect willa provide you, the customer, with a to “individual notice� or “individual delivdocument that will instruct your bidery� (such as for the delivery of notices ders on materials and procedures for of disciplinary hearings and annual the specific job. And it is a legal docudisclosures), an association may now mentdocuments so the material in the specificasend to individual members tion will need to be used as or directed. by first class mail, registered certifiedIn this case, we will discuss a repaint specimail, express mail, overnight delivery by an express carrier, andto electronic fication and job walk explain means its im(if the member has given written consent portance before you acquire paint bids for electronic from paintingdelivery). contractors. By taking advantage a professional specificaFor “generalofdelivery� or “general notice� tion you willthe benefit by of receiving com(such as for noticing association board meetings), an association may now parable bids. give notice by any of the methods permitted Paint Manufacturer Specification forAindividual notice/individual delivery, paint manufacturer specification inclusion in a billing statement or newsletprovides detailed information about ter, posting in a prominent and designated preparation for specific substrates, apcommon area location (so long as the plication,have color,previously clean up,been etc.,given and members specifies what products will be used notice of the notice designation area), on theinclusion repaint: in soclosed-circuit all contractors will be or association bidding on the same value prodtelevision programming thatline is utilized by association forfrom information uct.the Lines can range Specialty to distribution.

An association’s boardline Ultra Premium.

The chosen value members and management team should will make a difference in the performbe fully aware of the new notice and ance and longevity of the repaint. delivery requirements to avoid unnecessary The specification writer, manager costs, delays in association business, and and/or members should identify claims ofboard non-compliance with the law. the following items before a specificaOther changes present in the new tion iskey prepared: Davis-Stirling Act center on required • Problem areas and/or concerns annual reports and disclosures. New Civil (e.g., dry rot, chalking, cracking, efCode Sections 5300 and 5310 require an florescence, etc.) and Annual Policy Annual Budget Report • Any wood or wrought Statement, respectively, toiron be delivered repair/replacement.

Wood to all association members on anreplaceannual basis (these replace the existing budget ment requires all six sides of primer andbefore disclosure requirements underin the replacing and caulking current Davis-Stirling Act).

The Annual certain areas.

May 2013 | ECHO Journal

• Color changes. There could be an additional cost to the painting bid if the color is significantly lighter or darker. • Exclusions—what substrates should One important area of not be painted? change under the new Davis• Any line items or specific bidding Stirling Act centers on the instructions. establishment of standardized Request a Paint Specification rules of specification notice and delivery The paint is written by that an association and itsrepa professional paint manufacture resentative who not only provides members are required a scope of work, to butfollow. also details the preparation needed for the specific substrates. This document indicates the specific primers for all at wood, ferBudget Report is to include, a minirous and non-ferrous metal, as well mum: a pro forma operating budget; aas concrete and/or stucco surfaces.

It also summary of the association’s reserves; indicates the topcoatfunding gloss level a summary of best the reserve plan; a statement regarding outstanding loans; for the surfaces, as well as specifying a summary the to association’s insurance the proper of paint meet or exceed the policies; and statements about deferred longevity recommended by the reserve maintenance, the levy of special assessstudy. ments, the funding of reserves and the procedures used to calculate reserves with respect to those major components for which the association is responsible.

The Annual Policy Statement, on the other hand, must include, among other disclosures: contact information for a designated association representative; information regarding the association’s assessment collection policies; a description of the association’s discipline and fine policies; dispute resolution procedures; and architectural modification application requirements.

“

A specification will provide you, the customer, with a document that will instruct your bidders on materials and procedures for the specific job. And it is a While much of this information is legal document so the currently required to be given by an association to its members on an annual material in the basis, the information now has to be specification need to organized in a new andwill different manner.

An association must, as a result, update be used as directed. and revise its annual budget and disclo-

�

sure processes forms,Information or else the Please note,and Product association may be limited in increasing (PI) sheets and Material Safety Data regular assessments, collecting delinSheets (MSDS) are available on all quent assessments and/or imposing paint products to explain the technical disciplinary measures. It is imperative make of the product well as any for an up association to seekashelpful special instructions.

Justbasis like televiresources on a proactive now to sions, are definitely the ensurepaints compliance with the not newall law. same!

If an association has a fiscal year that begins mid-year after Keep in mind(sometime 75–80% of theJanuary paint 1), we believe that the budget and is bid is attributed to labor; 20–25% disclosures distributed for the association’s material (paint, caulking, etc.).

This ECHO Journal | May 2013

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2013-2104 fiscal year must comply with both the current and new Davis-Stirling Act requirements (no one said this was going to be an easy transition).

A very specific, and important, substantive addition in the new Davis-Stirling Act covers board member conflicts of interests. Civil Code Section 5350 will prohibit an association board member from voting on a variety of matters that concern himself/herself, including discipline of the board member, a request by the board member for a payment plan for delinquent assessments, the decision of whether to record a lien or to foreclose upon the board member’s separate interest, proposed architectural modifications by the board member, and the granting of exclusive use common area to the board member. These new requirements will help avoid conflict of interest issues when conducting board business.

Another substantive change in the new Davis-Stirling Act involves the granting of exclusive use of common area to association members. Associations will now be permitted, without member approval, to grant exclusive use of the common area

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Other key changes present in the new Davis-Stirling Act center on required annual reports and disclosures.

in order to accommodate a disability, eliminate or fix certain construction issues, and install electric vehicle charging stations (subject to certain requirements).

That said, it is important for an association granting exclusive use of common area to consider requiring that a covenant running with the land be recorded against the applicable member’s separate interest to protect the association and describe maintenance, insurance, and legal responsibilities for the exclusive use area.

New penalties have been introduced for associations that do not comply with certain requirements of the new DavisStirling Act, such as board meeting requirements. Under the new law, an association can be liable for a penalty of up to $500 for each violation of the Common Interest Development Open Meeting Act (a sub-set of the Davis-Stirling Act). For example, if an association’s board of directors meets without giving proper notice (e.g. a quorum of the board emails on any association item of business between board meetings), not only will the board be in violation of the DavisStirling Act (and any decisions made by the board outside of a meeting potentially voidable), but the association can now be subject to a court ordered fine as a result of the board’s non-compliance. All boards should comply with the statutory meeting requirements to avoid these penalties.

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In addition, various other changes have been made in the new Davis-Stirling Act. For example, a member is no longer responsible for any fees and costs incurred by his/her association as a result of a lien recorded in error, including costs associated with the pre-lien or intent to lien letter, or late charges, fees, interest and other related costs. Moreover, if a member employs dispute resolution, and the lien is determined to have been recorded in error, the

June 2013 | ECHO Journal

27

12926 and 12926.1. These definitions are broadly contractors construed. Major life activilandscape (800)ties 891include - 7710 www.cagwin.com physical, mental and social as well as working.

Chronic We Knowactivities, Homeowners Associations or episodic conditions are covered as Locally owned and A operated since of 1955 disabilities. few examples physical Regular and site mental walks with your account disabilities recognized by managerDFEH include heart disease, multiple palsy, 24-Hour sclerosis, customerHIV-AIDS, service &cerebral emergency responsepost-traumatic stress disorder and clinical depression.

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Connecting homeowners and board members using today’s technology lift and that cannot operwith a wheelchair yesterdays’ traditional care. ate in the garage due to physical conContact GCM to discuss your be a reasonable restraints, it would management needs. quest for that resident to be granted an accommodation for parking in a near(888) 277-5580 by common area parking space despite COMMUNITY graysoncm.com restrictions or rules that would otherMANAGEMENT helpdesk@graysoncm.com wise prohibit granting such a permit. A Offices in Santa Clara, San Mateo and San Francisco

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association must pay for the entire cost of dispute resolution.

Further, a properly noticed hearing before an association’s board of directors is now required before the board can levy a reimbursement assessment against a member for costs incurred by the association to repair damage to the common area for which the member is responsible.

Also, it is now clarified that an association is not responsible for any temporary relocation costs (e.g. lodging, meals, transportation) incurred by a member due to the need of the member to temporarily vacate his/her separate interest as the result of maintenance or repair of the common area by the association.

Some of our association clients have questioned whether an association should wait to update and rewrite its governing documents until after January 1, 2014. If an association’s governing documents are six to eight years old, the association undoubtedly has out of date documents (in terms of both the law and best business practices), and we believe associations should get ahead of the curve and consider amendments now, as it is a perfect time for an association’s board of directors to begin the process of amending and restating its governing documents. Keep in mind that certain association documents, such as an association’s collection policy, will need to be amended before the end of the year and distributed to the members to comply with the new Davis-Stirling Act. On the subject of collection, it will likely be necessary for an association (and, as applicable, the association’s managing agent and/or collection services provider) to update the association’s late letter, prelien (intent to lien) letter, and lien if these documents refer to existing Davis-Stirling Act code sections. Although there is no

Order from ECHO! Call 408-297-3246 Fax 408-297-3517 Online: store.echo-ca.org

28 echo-ca.org

The new Davis-Stirling Act involves the granting of exclusive use of common area to association members.

May 2013 | ECHO Journal

of federal and state law. Therefore a prima facia (on its face) case is established when rules treat children, and property to review the specification thus families with children, differently and the property This and walk less favorably thantogether. adults-only will further identify problematic households. Such rules are illegalsubunstrates, issues and will less the address association, board andprovide manageA member no longer ment can articulate legitimate justificontractors with theisasame information responsible for any fees and cation for their existence.

See United in order to correctly bid the job.

States costs vs.Badgett, 97 F. 2nd 1176 (1992). incurred by his/her This will provide you, as the In association defending a rule safety as aon result ofgrounds, aBoard lien themanager, association must show that it has a or confidence that bidders recorded in error, including compelling business necessity supportare bidding to equal standards because costs associated with the ing it, and that it is the least restrictive they are all on site the same time pre-lien or at intent to lien means used to obtain that end. See and questions are and anletter, or lateaddressed charges, fees, Fair Housing Council vs. Ayres, 85 F. swered together. interest and other Supp. 315, 318-19 (1994).

costs.

Rules thatrelated contain absolute prohibiRFP vs. Paint Specification tions against children under eighteen, What is an RFP (Request such as those prohibiting usefor ofProrecrepenalty not updating these documents, ational for facilities andmanagers playing inwrite streets posal)?

Community we’ve all the saying “an ounce in theas common areas, arethat vulnerable to RFPs aheard general request for proposal. of prevention is worth a pound of cure”. the challenge that theyasare not the the adThis can be simple giving It is easier toas update an to association’s least restrictive means achieve the dress of thecollection property documents and asking now, for reassessment ends. Plaza Mobile Estates vs. Oloff, 273 F. than to later explain to a delinquent paint any additional deSupp.bids 2nd without 1084 (2003).

As the court member why a collection letter or tail.

This meansMobile that one contractor noted inrecorded Plaza Estates, age restricpublicly document makes may give a bid using a one coat value tions concerning use of common area reference to a nonexistent/superseded Civil Code section. line product from a ‘big box store’ ECHO Journal | May 2013 whereas another contractor beare The changes discussed in this may article only a few of the important substantive supplying a bid that reflects a two coat, changes in the new Davis-Stirling Act top of the line paint from a paint mantaking effect in 2014. Many of these ufacturer.

Inimpact other words, it is not an changes will how associations and their boards and members commuequal bid comparison. If you have a nicate, interact and conduct business, choice between an RFP and a paint and will also impact the business manufacturer’s specification, choose practices and requirements of an assothe manufacturer’s specification. ciation’s managing team.

While the Mannew Davis-Stirling Act makes a concerted ufacturers are the paint experts and effort to bring transparency and fairness will choose quality products that are to the forefront, it will be incumbent best suited for your community. upon association boards of directors to meet the new law halfway and impleIn my experience, managers that use ment and carry out its provisions in a the professional specification writing compliant manner. services (and job walks) appreciate the streamlined procedure when requesting bids.

Ann Thomas is a Representative for the Property Services Division for Dunn-Edwards Paints.

She is a member of the ECHO Maintenance Resource Panel. Ann can be reached at ann.thomas@dunnedwards.com for any questions about this article.

ECHO Journal | May 2013

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June 2013 | ECHO Journal

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Is it t ime to update your governing documents? – by Stephanie Hayes, Esq.

30 echo-ca.org

y now, virtually all homeowner association directors

B

and professionals in the industry know that a new

version of the Davis-Stirling Common Interest Development Act will become effective on January 1, 2014. Primarily, the current Act is being clarified and reorganized with a new numbering system. But while the changes were intended to be technical in nature, there are substantive changes. Over the next several months, boards and managers will need to become familiar with and adapt to “new Davis-Stirling.�

June 2013 | ECHO Journal

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oes an association have to revise its governing documents (i.e., articles of incorporation, bylaws and Declaration of Covenants, Conditions and Restrictions or “CC&Rs”) because of new Davis-Stirling? NO. Even so, there are a multitude of reasons why an association should consider updating its documents. With all of the attention now being focused on the new Act which will soon become effective, now is as good a time as any for boards to look at the governing documents for their associations and consider updating them.

D

To assist boards in their review and decision making process, this article will explain why it is important for associations to have up to date governing documents. This article will also provide suggestions for a smooth and successful document revision project, which will be particularly helpful for boards who are fearful that after all of their efforts (and legal expenses paid by the association), the homeowners will not approve the documents

Why do governing documents need to be updated?

Remove Obsolete Provisions any associations still have original developer documents that were drafted 10, 20 or even 30 years ago when the condominium project or planned development was first created. The documents were written to satisfy Department of Real Estate (DRE) requirements imposed on the marketing and sale of “separate interests” (i.e., condominium units and single family lots) in a common interest development.

After the developer sells off the separate interests and is no longer in the picture, most if not all of the DRE provisions and requirements no longer apply, but are still in the documents. These old provisions cause confusion. A governing

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32 echo-ca.org

document rewrite would remove obsolete provisions, such as those referring to the “declarant” (i.e., developer) and establishing two classes of membership (Class A for homeowners and Class B for the developer).

Customize to Specific Characteristics of the Association Developer drafted documents are often “recycled” for a different project and do not accurately reflect the physical characteristics of the particular development. Take the

the use of unassigned parking areas instead of having the CC&Rs dictate who may or may not park in those areas.

Address Issues not Covered

by Current Documents Associations often face issues that were never addressed in or contemplated by their governing documents.

Updating the governing documents is a great vehicle for boards and communities to look at what is missing from their documents and decide what additional areas should

---------------------------------------------------------------CC&Rs should clearly explain the respective maintenance responsibilities of the association and individual owners.

---------------------------------------------------------------case of CC&Rs for a condominium project with assigned carports that were “recycled” to create CC&Rs for a planned development consisting of single family “townhouse style” homes. The developer’s counsel did not modify the CC&Rs to reflect the existence of garages instead of carports located in the common area and assigned to individual owners and maintained by the association.

Developer-drafted CC&Rs at times include references to components that do not even exist. This creates confusion not just for current owners but new purchasers as well.

Some document restrictions may no longer be appropriate today. A CC&R provision stating that “only guests may use unassigned parking spaces” may have made sense in 1990 when a household typically had one or two cars at most. But does it work for the community now, when more occupants are likely to have multiple cars? Flexibility can be added to the CC&Rs. For example, the CC&Rs can specifically give the Board the authority to adopt rules regulating

be covered. A wide range of options are available, which include placing a limit or “cap” in the CC&Rs on the number of rentals in the community.

It will be essential that the board consults with competent legal counsel on the advisability of including new restrictions.

Clarify Maintenance Responsibilities CC&Rs should clearly explain the respective maintenance responsibilities of the association and individual owners. Older documents often do not address responsibility for “exclusive use common area” components, such as patios, decks and balconies.

The Board then has to call upon the association’s attorney to review vague or confusing maintenance provisions and render a legal opinion on whether the association, or an individual owner, is responsible for a particular component.

Vagueness can also result in inconsistent handling of a maintenance issue by the association, such as paying for the repair of a broken sewer line for one owner and then

months later rejecting another owner’s request for the same type of repair. This can lead to owner resentment and lawsuits filed by owners who seek reimbursement for their repair costs and legal expenses.

Clarifying maintenance provisions can minimize the association’s legal fees for attorney opinions, the association’s exposure to lawsuits filed by disgruntled owners, and possible judgments entered against the association by the court.

written ballot system: (1) assessment increases requiring homeowner approval; (2) election or removal of directors; (3) amendment of the governing documents; and (4) the grant of “exclusive use of common area” to less than all of the owners. But bylaws adopted before July 1, 2006 typically allowed all homeowner votes to be conducted at a membership meeting, either by a show of hands or owners completing a ballot given to them when they appeared at the meeting. Associations that rely

---------------------------------------------------------------It will be important for the board to...create a ‘wish list’ of changes and new provisions.

---------------------------------------------------------------Remove Conflicts between the Documents and Current Law Conforming the association’s bylaws and CC&Rs to current law by removing conflicts between those documents and changes in the law is another important reason to update the governing documents.

When original documents for an association were drafted and adopted by the developer, one would expect that they conformed with the laws then in effect. Assuming that was the case, there have been many changes to the Davis-Stirling Act since it was originally enacted by the California Legislature in 1985. Consequently, many Bylaws and CC&Rs contain provisions that conflict with and are overridden by current law.

A good example is the voting and elections law that became effective on July 1, 2006 and mandates how all California homeowner associations must conduct votes of its members, including elections of directors (Civil Code section 1363.03).

Without exception, member votes on the following issues must be conducted using a dual-envelope secret

on their bylaws and do not conduct votes on the four identified subject matters via a dual-envelope secret written ballot system have violated the law. Homeowners have the right to bring a “civil action” against the association for declaratory or equitable relief for violations of the election law, to recover attorneys’ fees and court costs, and to recover a civil penalty of up to $500 for each violation of the law.

Tips for a smooth and successful governing document revision project hether a particular board decides to update the association’s governing documents will depend on a number of different factors.

Does the association have the funds to pay the legal expenses for the revision project or are all available resources being devoted to a major repair project? Is the board focused on defending or prosecuting a lawsuit and unable to devote time or energy to the governing document rewrite?

Is the board (and are successor

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boards) prepared to spend the time needed to see the project through to a successful membership vote?

If and when the board is ready take on the task, consider the following tips on how to have a smooth and successful governing document revision project.

Retain Competent Legal Counsel Associations should be sure to work with legal counsel who is particularly knowledgeable about homeowner associations and experienced in drafting articles of incorporation, bylaws and CC&Rs for both condominium projects and planned developments (i.e., single family attached and detached homes). You would not go to a dermatologist for a heart transplant, and similarly a wills and trusts lawyer is not necessarily the best choice to rewrite your governing documents.

Review Current Documents and Create “Wish List” of Changes It will be important for the board to review the association’s current documents, particularly the Bylaws and CC&Rs, and create a “wish list” of changes and new provisions.

Some examples would be: • Should the number of directors set forth in the Bylaws be increased or decreased?

• Should the quorum requirement in the Bylaws for membership elections and other votes be reduced because it is too hard to conduct director elections due to owner apathy?

• In a development where parking is scarce, should the CC&R provision that prohibits parking in the driveway of the garage be changed to permit such parking as long as the vehicle does not extend into the street or sidewalk?

• Should the CC&Rs include a “cap” on the number of rentals in the community?

June 2013 | ECHO Journal

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Recognize that due to legal constraints the association’s attorney may not be able to accommodate all of the board’s wishes. But in the end, the documents should reflect what the board believes is best for the community and appropriate to submit to the homeowners for their review and approval.

the owners have to say or offer. Instead, provide the board-approved drafts to the members and invite them to attend an “Informational Forum” where they can hear a presentation and ask questions.

Involve the Members

Explain in writing and at the Informational Forum why the governing documents are being revised and listen to the members’ comments and complaints.

Experience has shown us that governing document revision projects are more successful when the board involves the membership in the process before they are asked to vote. Merely sending out the proposed documents with a ballot is more likely to provoke an automatic “NO” vote. Owners may vote no because they perceive the board’s attitude as “take it or leave it,” with no regard for what

Take for example, an association whose CC&Rs permit two common household pets. The board decides to keep the numerical limit on pets the same (i.e., two), but wants the new CC&Rs to prescribe that no more than one of the pets may be a dog. Hearing the owners’ points of view may lead the board to conclude that there is no way that the new CC&Rs will pass with the restriction

-----------------------------------------------------------------------Governing document revision projects are more successful when the board involves the membership.

------------------------------------------------------------------------

on the types of pets. Listening to the owners and making adjustments may very well be the difference between the CC&Rs getting approved or being voted down – meaning that the document will have to be abandoned or revised and voted on again. On the other hand, the board may conclude that there is sufficient support for the CC&Rs, including the new pet restriction, and that no changes are warranted.

Monitor the Return of Ballots Votes on new governing documents must be conducted by a dual-envelope secret written ballot system and owners must, by law, be given at least 30 days to return their ballots. And the ballots must be opened and counted at an open meeting of the membership or the board. It is entirely possible that the association will not receive enough ballots to satisfy the quorum requirements, much less satisfy the approval requirement for each document. Keep track of the number of ballots received and make sure that the inspector of election extends the deadline for receipt of ballots as many times as are needed to conclude the vote.

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34 echo-ca.org

Work to Get Out the Vote The board and likeminded owners will need to work to get out the vote. It would be a shame to spend so much time and money on the document revision project only to give up and let it fail. Constant communication with the homeowners and reminders to vote will be critical.

“Supermajority” Approval Requirements The bylaws and CC&Rs will identify the level of homeowner approval that is required to amend those documents.

Most bylaws will require either approval of a majority of the owners who vote (sometimes referred to as a “majority

-----------------------------------------------------------------------Enlist volunteers to go door to door to encourage owners to mail in their ballots.

-----------------------------------------------------------------------Include articles in the association’s newsletter about the governing documents and send reminder postcards to owners who have not yet voted. Enlist volunteers to go door to door to encourage owners to mail in their ballots.

Consider giving incentives to owners to return their ballots, such as a raffle drawing for a gift card which will be awarded upon conclusion of the vote (and regardless of whether the new documents are approved or fail).

of a quorum”) or a majority of all of the owners (also referred to as a “majority of the total voting power”). Most CC&Rs provide that approval of a majority of all of the owners is required to amend that document.

However, some bylaws and CC&Rs contain “supermajority” approval requirements. For example, approval of 2/3 or even 75% of all of the owners may be required to amend the document.

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June 2013 | ECHO Journal

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-----------------------------------------------------------------------It can be very difficult…to get a majority of the owners to vote for approval.

------------------------------------------------------------------------

associations, it can be very difficult and time consuming to get a majority of the owners to vote for approval. It may be downright impossible to get a “YES” vote from 67% or more of the owners. Is it a waste of time to even try? NO!

Thankfully, the Legislature has provided a way for associations who are in this predicament to obtain court approval of new bylaws and CC&Rs. For the association to be successful, the CC&Rs must be approved by at least a majority of all of the owners after a “reasonably diligent effort was made” to permit all eligible owners to vote, and the court must find that “the amendment is reasonable” (see Civil Code section 1356). There is a similar provision in the Corporations Code that authorizes court approval of bylaws. Boards faced with the prospect of having to satisfy “supermajority” approval requirements will especially need guidance from legal counsel who is not only well versed in drafting governing documents but also experienced in filing and prosecuting petitions for court approval of amended governing documents.

---------------------------------Boards should scrutinize and update their association’s governing documents.

----------------------------------

36 echo-ca.org

directory updates

Conclusion

s discussed above, there are many reasons why boards should scrutinize and update their association’s governing documents. If a board is not already considering updating their documents, the adoption of “new Davis-Stirling” makes this a good a time to work on getting the bylaws and CC&Rs up to date. While revising the governing documents may seem like a daunting task, it can be done and, if successful, should help the association run more smoothly, save money, and minimize homeowner complaints and legal claims.

A

Stephanie J. Hayes, Esq. is a principal with the law firm of Hughes Gill Cochrane, P.C. located in Walnut Creek, California.

Ms. Hayes has represented community associations for the past 18 years. A large part of her practice involves updating her clients’ governing documents. This article is intended to provide general information and should not be relied upon as legal advice. Please contact your association attorney with specific questions and concerns.

All current listings may be found in our Professionals Directory available online at www.echo-ca.org.

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Become an ECHO Professional Member and receive the benefits of membership.

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ECHO event calendar

RESOURCE PANEL CALENDAR Wednesday, June 5 Maintenance Resource Panel 12:00 Noon ECHO Office, 1602 The Alameda, Suite 101, San Jose

Thursday, July 11 North Bay Resource Panel 11:45 a.m.

Contempo Marin Clubhouse, 400 Yosemite Dr., San Rafael

Wednesday, August 21 Wine Country Resource Panel 11:45 a.m.

Serv-Pro, 373 Blodgett St., Cotati

Wednesday, June 12 South Bay Resource Panel 12:00 Noon Buca Di Beppo, 1875 S. Bascom Ave., Campbell

Wednesday, July 17 Wine Country Resource Panel 11:45 a.m.

Serv-Pro, 373 Blodgett St., Cotati

Thursday, September 5 North Bay Resource Panel 11:45 a.m.

Contempo Marin Clubhouse, 400 Yosemite Dr, San Rafael

Friday, June 14 East Bay Resource Panel Massimo Restaurant, 1603 Locust St., Walnut Creek 12:00 Noon

Wednesday, July 17 Legal Resource Panel 6:30 p.m.

Porterhouse, 60 E 3rd Ave, San Mateo

Monday, September 9 Accountants Resource Panel 6:00 p.m.

Scott’s Seafood, 2 Broadway Oakland

Wednesday, June 19 Wine Country Resource Panel 11:45 a.m.

Serv-Pro, 373 Blodgett St., Cotati

Wednesday, August 7 Maintenance Resource Panel 12:00 Noon ECHO Office, 1602 The Alameda, Suite 101, San Jose

Tuesday, September 10 Central Coast Resource Panel 12:00 Noon Michael’s On Main, 2591 S Main St., Soquel

Monday, July 8 Accountants Resource Panel 6:00 p.m.

Scott’s Seafood, 2 Broadway, Oakland

Friday, August 9 East Bay Resource Panel Massimo Restaurant, 1603 Locust St., Walnut Creek 12:00 Noon

Wednesday, September 18 Wine Country Resource Panel 11:45 a.m.

Serv-Pro, 373 Blodgett St., Cotati

Tuesday, July 9 Central Coast Resource Panel 12:00 Noon Michael’s On Main, 2591 S Main St., Soquel

Wednesday, August 14 South Bay Resource Panel 12:00 Noon Buca Di Beppo, 1875 S. Bascom Ave., Campbell

REGULARLY SCHEDULED RESOURCE PANEL MEETINGS Panel

MEETING

location

Maintenance

First Wednesday, Even Months

ECHO Office, San Jose

North Bay

First Thursday, Odd Months

Contempo Marin Clubhouse, San Rafael

East Bay

Second Friday, Even Months

Massimo Restaurant, Walnut Creek

Accountants

Second Monday, Odd months

Scott’s Seafood Restaurant, Oakland

Central Coast

Second Tuesday, Odd months

Michael’s On Main, Soquel

South Bay

Second Wednesday, Even Months

Buca Di Beppo, Campbell

Wine Country

Third Wednesday, Monthly

Serv-Pro, Cotati

Legal

Quarterly

Varies

June 2013 | ECHO Journal

37

ECHO honor roll

about ECHO

ECHO HONORS VOLUNTEERS ECHO Resource Panels

Regional Seminar Speakers

Accountant Panel Marco Lara, CPA 650-632-4211

Marin David Feingold, Esq. Wanden Treanor, Esq. Glenn Youngling, Esq.

Central Coast Panel John Allanson 831-685-0101 East Bay Panel Beth Grimm, Esq. 925-746-7177 Cindy Wall, 925-830-4580 Legal Panel Mark Wleklinski, Esq. 925-280-1191 Maintenance Panel Brian Seifert 831-708-2916 North Bay Panel Diane Kay, CCAM 415-846-7579 Stephany Charles, CCAM 415-458-3537 South Bay Panel George Engurasoff 408-295-7767 Wine Country Panel Pam Marsh 415-686-9342 Legislative Committee Paul Atkins Jeffrey Barnett, Esq. Sandra Bonato, Esq. Jerry Bowles Oliver Burford Joelyn Carr-Fingerle, CPA Chet Fitzell, CCAM John Garvic, Esq., Chair Geri Kennedy, CCAM Wanden Treanor, Esq.

38 echo-ca.org

WHAT IS ECHO? Serving Homeowners to Build Strong Community Associations Hot Topics Tyler Berding, Esq. Alan Crandal Stephanie Hayes, Esq. David Kuivanen John Schneider

San Francisco Steve Weil, Esq.

Recent Contributing Authors

Santa Cruz Lisa Esposito, CCAM Sharon Pratt, Esq. Rob Rosenberg, CCAM Paul Schultz Rosalia Tapia, Esq.

February 2013 Oliver Diaz Lisa Esposito, CCAM Betty Jones, Esq. Robert Rosenberg, CCAM Steven S. Weil, Esq. Glenn H. Youngling, Esq.

Wine Country Carra Clampitt Bill Gillis, Esq. David Hughes Ken Kosloff Tom O’Neill Steve Weil, Esq. South Bay Derek Eckert Stephanie Hayes, Esq. Robert P. Hall Jr., Esq. Fresno Geri Kennedy David Levy, CPA Michael J. Hughes, Esq. ECHO Oakland Speakers April 6, 2013 Board Essentials Ian Brown Derek Eckert Geri Kennedy Ken Kosloff David Levy, CPA Steve Weil, Esq. Legal Jeffrey Barnett, Esq. Kevin Canty Sandra Gottlieb, Esq. Julie Mouser Deon Stein, Esq. Wanden Treanor, Esq.

March 2013 Tom Fier, Esq. Paul Schultz, CIC, CLIA, CLT-E Deon R. Stein, Esq. Amy K. Tinetti, Esq. April 2013 Robert Aune Stephany Charles, CCAM Beth Grimm, Esq. Diane Kay, CCAM Hannah Skiles May 2013 Tyler Berding, PhD, Esq. Julia Hunting, Esq. Jeffrey Barnett, Esq. Ann Thomas Sherry Harvey, PCAM

The Educational Community for Homeowners (ECHO) is a nonprofit membership corporation dedicated to assisting California homeowner associations. ECHO provides help to homeowner associations on many fronts: finances, legal issues, insurance, maintenance and management. Members receive help through conferences, trade shows, seminars, online education, a monthly full-color magazine and discounted publications.

Who Should Join ECHO? If your association manages condominiums or a planned development, it can become a member of ECHO and receive all of the benefits designated for homeowner associations.

Benefits of Association Membership • Subscription to monthly magazine • Access to members-only online education • Updates to the Association Statute Book • Frequent educational seminars • Special prices for CID publications • Legislative advocacy in Sacramento

ECHO Membership Dues Association Membership 2 to 25 units....................................$120 26 to 50 units..................................$165 51 to 100 units................................$240 101 to 150 units..............................$315 151 to 200 units..............................$390 201 or more units...........................$495 Professional Membership.................$425 Association Management Membership.......................................$425 Individual Membership.....................$100

How Do You Join ECHO? Over 1,700 members benefit each year from their membership in ECHO. Find out what they’ve known for years by joining ECHO today. To apply for the membership, sign up online at www. echo-ca.org.

For more information about membership and ECHO, call us at 408-297-3246 or visit the ECHO website.

The Annual Seminar is moving downtown!

The Annual Seminar will be held on August 24th in the newly-renovated facilities at the San Jose Convention Center. Early registration begins now.

ECHO San Jose 41st Annual Seminar & Trade Show August 24th 8:00 AM to 4:30 PM San Jose Convention Center 150 W. San Carlos St. San Jose, CA 95113 Agenda

Review the basics at our Board Member Essentials course, prepare for 2014 with our Legislative Update, learn all about New Davis-Stirling, and much more. Watch our website and the ECHO Journal for upcoming session announcements and event details.

Sponsors

Price: $89 Members ($99 after July 21) $119: Nonmembers ($129 after July 21) Registration includes lunch, all educational sessions, access to the trade show, and discounted parking. Register online at www.echo-ca.org.

A Construction Looks At

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Manager Reserve Studies

by Richard Tippett

We recently took on the responsibility for specifying and managing the repairs and partial re-paving of the roads and parking areas in a fairly large complex in Fremont.

The complex was twenty-three years old at the time.

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hen we asked what their budget for the project was, the board gave us a dollar value that they said was based on their reserve study that had just been updated the year before. They were very proud of the fact that their reserve was fully funded. Part of our internal procedure is automatically to perform a rough check of all budget estimates that we receive. Our rough check showed that the reserve study was off by 50 percent. We immediately notified the board of this discrepancy; the apparent lack of funds meant possible postponement of the work.

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We asked the board for a copy of the study. It arrived, bound, forty-plus pages long, with three pages of disclaimers making up the preface. All in all it was a very impressive, authoritative looking document. Unfortunately, the appearance was deceiving.

As we analyzed the paving reserve number, we found the following discrepancies:

1 2

There was an 18 percent error in the amount of paved area reported.

None of the visitors’ parking areas apparently was included in the totals.

There was no provision for replacing the asphalt concrete drainage channels, which had failed completely, with reinforced structural concrete.

3

There was no provision for strengthening failed asphalt paving at dumpster areas. These areas had all failed because they were never designed or constructed to withstand the weight of garbage trucks.

4

There was no provision for resetting the surface drain boxes that had settled over twenty-plus years. There was also no provision for repairing the drain lines that ran into them and that had been crushed by the settled boxes.

5

There was no provision for correcting tree root damage in two parking areas or installing tree root barriers so that the damage wouldn’t reoccur.

6 7

There was no allowance for restriping the parking area, installing new reflectors, repainting speed bumps and the “Stop” signs at intersections or repainting curbs at fire hydrant, loading zones or the five handicapped spaces.

The unit prices for both seal-coating and re-paving were both 35 percent below current market rates.

There was a hastily-called meeting with the board and the management company.

We discussed whether to proceed with the work, whether additional money could be found to pay for it, and what alternate and (short term) less expensive approaches could be taken to repair the paving. There was no real possibility of postponing all of the work; some areas were already rutted and others were badly alligatored from excess lawn watering.

At the board’s direction we contacted the reserve study preparer. The purpose was twofold: to learn why there was such a discrepancy between the reserve study and what we saw as the realities on site, and to see “what could be done.”

We learned the following:

1

2

3

The employee who prepared the study had not inspected the complex. He had never measured the paving, looked into the drains, or gone near the dumpsters. He had spent roughly four hours on site.

The time was divided between meetings with the board and the manager, looking at the pool, lawns, paint, landscaping, fences, roofs (from the ground only) and “walking around.”

The study was based on previous studies by other firms. The new preparer simply took the data from the previous study and “corrected” the cost of work for present inflation rates. He then deducted money spent for major repairs since the previous study and reissued the document.

There was no attempt made to verify either the quantity of work or the dollar value for the units of work.

In other words, no one actually measured the paving or checked to see if the price to coat or replace

paving was accurate, or even looked at what the prices were based on.

4

Because no site survey was done, the additional cost of the necessary work of removing tree roots, raising drain boxes, building concrete gutters or strengthening paving at dumpsters was not added to the reserves.

5

It turned out that the unit prices used in the reserve study were based on California Department of Real Estate unit price estimates published twenty-five years before, when the developer first put the project together. DRE unit price estimates are generally inaccurate, as they are already out of date when they are published.

6

The reserve preparer had not corrected the DRE unit prices to match current market prices. Market prices had gone up more than 300% over the twenty-three years. Correcting the DRE unit price for 3 percent annual inflation over the same time only increased the cost by 240%.

replacement is reserved for. The physical examination must then be followed by a review of present-day repair/replacement costs based on the work that will actually need to be done for that particular association.

A valid reserve study requires that the preparer spend time on the site, examining and measuring the common area components whose maintenance/ replacement is reserved for.

T

A valid reserve study can’t be done for $2,000.00 or less, unless the complex is very small, or very new. If your association is 50 or more units, plan to spend at least $5,000-$7,500 or more. Insist that the preparer check both work quantities and unit prices; the preparer should come to the site and measure and inspect your property. The preparer should also provide source information for the unit prices that the reserve estimates are based on.

It is a common occurrence to discover that an association’s reserve study is inaccurate and incomplete. There is apparently a cottage industry producing computer-generated documents that are based on reports generated by the developer at the inception of the complex and that have limited basis in reality.

The documents cost little to produce and provide a nice cash flow for the producer.

They satisfy the technical requirements of Davis-Stirling. They do nothing to satisfy the board’s need for a reliable planning document.

Having a proper reserve study done will prevent the kind of unpleasant surprises that our paving client experienced.

They had to “special assess” themselves $1,000/unit in order to accomplish the necessary work.

his example of a “bad” reserve study is just one of the many we have been personally involved with or have heard about. Some are even more egregious. One that we know of reserved (inaccurately) for complete plywood siding replacement after twenty years, but assumed that wooden decks would last for thirty years. After nineteen years the siding was fine, but forty percent of the decks had to be rebuilt!

A valid reserve study requires that the preparer spend time on the site, examining and measuring the common area components whose maintenance/

Richard Tippett is president of ERTECH, Inc., a reconstruction management firm.

He is a former chairman of the ECHO Maintenance Resource Panel and the Central Coast Resource Panel. He served nine years on ECHO’s Board of Directors, and is a regular contributor to these pages.

June 2013 | ECHO Journal

43

44 echo-ca.org

The 2012 California Community Association Financial Survey Tyler Berding, J.D. Ph.D. David Levy, CPA

C

ommunity Associations are going broke. They are running out of cash. Borrowing from reserves to pay operating expenses has left reserve accounts seriously underfunded. There will not be enough money to do necessary repairs when the time comes. As a consequence, associations are resorting to bank loans and special assessments to fill the gap. How do we know this? Check the survey below.

June 2013 | ECHO Journal

45

manage. advocate. nearby. obsessive. responsive.

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I

introduction

n 1996, Berding|Weil published “Latent Liabilities” a treatise which explored the long-term impact of underfunding the reserve accounts of community associations. Some of our data came from our clients, and some from Levy, Erlanger & Company. We suggested that most community associations, and principally condominiums, were severely underfunded for long-term maintenance and repair and predicted that this issue could lead to large-scale deferral of maintenance obligations and ultimately a shortened service life for these projects. Subsequent financial surveys by Levy, Erlanger & Company, with our assistance, have shown this problem to be endemic—this year’s survey finds community associations now have only 54% of the funds on hand that their reserve studies say they should have at this point in time. And the problem is obviously getting worse—in 1993 that figure was 60%! The survey numbers support the predictions.

Borrowing from reserves for regular and newly discovered maintenance problems has trended upward, and when the reserves run out, borrowing from banks increases. The fundamental cause of this cash shortage is the inability or unwillingness of boards of directors to increase assessments sufficiently to stay ahead of both inflation and the cost of anticipated repairs, but also with the discovery of unplanned-for maintenance and repair problems which are not anticipated by the reserve budget at all.

These instances of “hidden damage” have pushed many associations to the financial edge. Too many older associations have discovered evidence of long-term deferred maintenance which, when discovered, carries a price tag that greatly exceeds the resources of the membership. Dry rot in balconies, entry structures, roof underlayment, and wall framing; and deterioration of utilities like electrical lines and plumbing, are becoming common but are rarely included in any reserve budget.1

Long-term underfunding of reserves coupled with the late discovery of unanticipated damage to buildings places a heavy financial burden on the owners 46 echo-ca.org

T

his year’s survey finds community associations now have only 54% of the funds on hand that their reserve studies say they should have at this point in time. And the problem is obviously getting worse— in 1993 that figure was 60%!

of attached housing units. This financial burden is heavy enough in some cases to raise the question: have many of these projects reached the end of their service lives—are they, in fact, obsolete? It is important to compare the resources and expenses of a community association to other, similar associations, and it is also important to investigate beyond the parameters of a typical reserve study— especially in older associations. Review the data in this survey and compare it to your own.2 Then ask yourself, are the components listed in your reserve study the only areas of concern, or could there be others? If your reserves have less than 100% of the funding called for by your reserve study and if your association was built more than 20 years ago, it’s time to undertake a sober review of the association’s financial and physical condition.

1. We have documented this problem in another treatise: “The Perils of Hidden Damage” which describes how these problems lie undetected unless the association initiates more intensive inspections of the property than are now undertaken. All of these articles and publications can be found on our website: www.berding-weil.com.

2. Levy, Erlanger & Company, CPAs offers a comparison of your association’s income and expenses with up to five similar associations, based upon the parameters of size, age, geographic location and subdivision type (condominium v. planned unit development) for a modest fee. They can be contacted at info@hoa-cpa.com for a cost estimate.

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the survey

T

his survey, while not the first of its kind, is probably one of the largest and most recent. It includes data from more than 2,000 northern California community association financial

statements. This survey is the product of many hours of work, and more importantly, the cooperation of almost two hundred management companies and self-managed associations, as well as the association of Berding|Weil, the leading California construction defect and homeowner association law firm. The data has been gleaned from the 2011 and 2012

year-end balance sheets and income statements of 2,157 community associations representing 226,297 individual units. Comparative data was also taken from three prior surveys done by Levy, Erlanger & Company in 1993, and with the assistance of Berding|Weil, in 2006 and 2008.

the results Percent Funded 1993

2012 Replacement reserve cash (2,044 surveyed associations)

$5,558

average/unit

Replacement reserve obligation (estimated based on 2006 percent funded)

$10,293 average/unit

2012 Percent Funded

54%

$1,708

Replacement reserve cash (813 surveyed associations)

average/unit

Replacement reserve obligation (813 surveyed associations)

average/unit

$2,864

1993 Percent Funded

60% In the roughly 20 years from 1993 to 2012, the percentage that reserves are funded has declined by approximately 10%.

Average Income and Expenses 2012

1993

Assessment, operations (2,146 associations reported data)

$367 (75%)

Assessment, operations (875 associations reported data)

$128 (80%)

Assessment, replacement (1,789 associations reported data)

$124 (25%)

Assessment, replacement (781 associations reported data)

$33 (20%)

2012 Total Assessment (based on 2,146 surveyed assns)

$470

1993 Total Assessment (based on 875 surveyed assns)

$161

monthly average/ unit

monthly average/ unit

Expenses, administration (2,141 associations reported data)

$148 (27%)

Expenses, administration (921 associations reported data)

$46 (20%)

Expenses, maintenance (2,120 associations reported data)

$154 (28%)

Expenses, maintenance (921 associations reported data)

$59 (26%)

(16%)

Expenses, utilities (921 associations reported data)

$31 (15%)

Expenses, replacement (1,628 associations reported data)

$164 (29%)

Expenses, replacement (921 associations reported data)

$47 (25%)

2012 Total Expenses (based on 2,142 surveyed assns)

monthly $557 average/

Expenses, other (921 associations reported data)

$10 (14%)

Expenses, utilities (2,070 associations reported data)

2012 Implied Deficit

48 echo-ca.org

$91

unit

$87 monthly average/unit, or approximately 19% of revenues

1993 Total Expenses (based on 921 surveyed assns) 1993 Implied Deficit

$193

monthly average/ unit

$32 monthly average per unit, or approximately 20% of revenues

Comparison Of 2012 And 1993 Survey Results

2012

1993

Assessments, average

$470

$ 161

Expenses Administration $148 (27%) Maintenance $154 (28%) Utilities $91 (16%) Replacement $164 (29%) Other Total expenses, average Implied Monthly (Deficit)

$ 512 $45

Percent Increase 192%

$46 (20%) 222% $59 (26%) 161% $31 (15%) 194% $47 (25%) 249% $10 (14%) $193 $32

280% 271%

The annual increase in administrative expenses over the last 19 years has been approximately 12% per year, maintenance expenses 8% per year, utilities 10% per year, and replacement reserve expenses 13% per year. While monthly assessments have increased 10% per year since 1993, total expenses have increased by almost as much at 9% per year during the same period.

F

unds are being diverted to cover this monthly deficit which should otherwise have gone to reserves, and are creating an accumulating deficit in the replacement reserve account—a total deficit of $10,300 per unit in 2012 versus $2,900 per unit in 1993 – an increase of 255% or 13% per year!

conclusion

L

ooking at the actual dollars being expended, the average common interest development has a monthly deficit of $87 per unit in 2012 compared to only $32 per unit in 1993 – a 3% per year increase. Next, look at the status of replacement reserve funding. Since operating expenses must be paid currently, how is this growing monthly deficit being covered? Funds are being diverted to cover this monthly deficit which should otherwise have gone to reserves, and are creating an accumulating deficit

in the replacement reserve account—a total deficit of $10,300 per unit in 2012 versus $2,900 per unit in 1993 – an increase of 255% or 13% per year!

This trend, which we noted in 2006 and 2008, and in various articles and treatises over the past 20 years, continues and is gradually eroding the ability of community associations to maintain their infrastructure. It is now to the point where the average association has only about half of the funds it needs on hand for the known long-term repair of the buildings and nothing on hand for any unknown or unexpected repair.

What is the long-term solution? Right now it’s special assessments and bank loans. Will owners who see no future in the property agree to pay more?

Probably not. What about mandatory funding of reserves as required in some other states, such as Florida and Hawaii?

Even in those states, however, reserve deficits are routine. The legislature should act, but there is a profound lack of awareness of this problem in all branches of government. Like political governments with deficits, only time will tell whether community associations can survive.

June 2013 | ECHO Journal

49

Nominating Committee Seeks Candinates for ECHO Board of Directors

T

he Nominating Committee for the ECHO Board of Directors is seeking expressions of interest from persons who are interested in serving on the ECHO Board of Directors. Four positions on the board will be up for election at the ECHO Annual Meeting that will be held in November. These positions are for three-year terms. Current directors whose terms expire in 2013 are John Garvic, David Levy, Karl Lofthouse and Wanden Treanor.

Board members are expected to attend four three-hour board meetings held each year, generally at the ECHO office in San Jose. Each board member also serves on one or more committees that hold regular meetings

50 echo-ca.org

throughout the year. In addition board members are expected to attend the Annual Meeting and a two-day board retreat each November. Board members receive no reimbursement for these activities. Nominees must also be members of ECHO, either through their homeowners association or business and have thorough familiarity with the organization and the CID industry.

Persons interested in being considered for nomination should obtain and complete a nomination and qualifications form, available by request from the ECHO office.

Every potential candidate, including incumbents, must submit a full form. All completed forms must be submitted to the ECHO office no later than July 24, 2013, to be considered by the nominating committee. Those requesting nomination may be requested to interview with the nominating committee. The committee will meet in late July to prepare recommendations for board consideration.

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51

Beyond Privatopia Non-Member Price:

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The rise of residential private governance may be the most extensive and dramatic privatization of public life in U.S. history.

In Beyond Priva topia, attorney and political science scholar Evan McKenzie explores emerging trends in private governments and competing schools of thought on how to operate them, from state oversight to laissez-faire libertarianism.

Condominium Bluebook 2013 Edition $17.00 Non-Member Price: $25.00

Condos, Townhomes and Homeowner Associations Member Price: $29.00 Non-Member Price: $45.00

Community Association Statute Book—2012 Edition Member Price: $15.00 Non-Member Price: $25.00

To make these a sustainable investment, new buyers, owners and board members need to understand “best practices basics” of how this form of housing works and have more realistic expectations of this form of “carefree, maintenance free” living.

Contains the current version of the Davis-Stirling Common Interest Development Act, the Civil Code sections that apply to common interest developments and selected provisions from other codes important to associations.

Robert’s Rules of Order $7.50 Non-Member Price: $12.50

The Board’s Dilemma Non-Member Price:

A step-by-step guide to the rules for meetings of your association, the current and official manual adopted by most organizations to govern their meetings. This guide will provide many meeting procedures not covered by the association bylaws or other governing documents.

In this essay, attorney Tyler Berding confronts the growing financial problems for community associations. Mr. Berding addresses board members who are struggling to balance their duty to protect both individual owners and the corporation, and gives answers to associations trying to avoid a funding crisis.

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Reserve Fund Essentials Member Price: $18.00 Non-Member Price: $25.00

The Condo Owner’s Answer Book Non-Member Price:

This book is an easy to read, musthave guide for anyone who wants a clear, thorough explanation of reserve studies and their indispensable role in effective HOA planning. The author gives tips to help board members mold their reserve study into a useful financial tool.

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This well-known compact guide for operation of common interest developments in California now includes a comprehensive index of the book and a chapter containing more than 200 frequently-asked questions about associations, along with succinct answers.

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52 echo-ca.org

$10.00 $15.00

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The Handbook is an in-depth guide to all aspects of association finances, including accounting methods, financial statements, reserves, audits, taxes, investments and much more. Not for the accounting novice, this is a tool for the treasurer or professional looking for specific information about association finances.

Board Member Handbook Member Price: $15.00 Non-Member Price: $25.00 This publication is the essential guidebook for HOA Board members, dealing with governance, finances, insurance and maintenance issues.

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Over 80 questions covering every management duty and includes answer sheets matched to the questions.

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June 2013 | ECHO Journal

53

legislation at a glimpse

Hot Bills Bill No

Author

Subject

Status

Position

Summary

AB 968

Gordon

Elections in Small Associations

This bill has passed the Assembly, and is now in the Senate Rules Committee waiting for assignment.

Support

This bill seeks to establish alternative election procedures for associations of 15 units or less, if approved by a majority of the members. The new procedures would allow qualifying associations to conduct votes in simplified fashion, by nominating candidates and casting ballots at the election meeting.

AB 637

Torres

Maintenance Responsibilities

This bill is now a twoyear bill, and will be reintroduced under a new number in 2014.

Support

This ECHO-sponsored bill establishes that the owner of each separate interest is responsible for maintaining the exclusive use common area appurtenant to the separate interest unless otherwise provided for in the governing documents. ECHO is continuing to work to educate legislators on the importance of this clarification.

As the bill is now on a two-year track, ECHO’s text has been removed from AB 637. Our language will be reintroduced in a new bill in 2014.

Other Legislation Bill No

Author

Subject

Status

Position

Summary

AB 126

Hall

Time-Share Mailing Lists

This bill not yet been set for hearing, and is dead for 2013.

Watch

This bill requires a time-share association to maintain a complete list of the names and postal addresses of all owners of time-share interests in the time-share plan and to update the list at least every 12 months.

AB 746

Levine

Smoking Prohibition

This bill failed in committee and is dead for 2013. The bill was granted reconsideration and may appear again in 2014.

Watch

This bill prohibits the smoking of cigarettes or other tobacco products in all areas of multifamily dwellings. It provides an exception for designated smoking areas.

AB 1360

Torres

Electronic Voting

This bill passed the Assembly with bipartisan support and is now in the Senate.

Support

This bill authorizes an association to conduct elections or other membership balloting by electronic voting. It also requires an association to provide each member with an opportunity to indicate that he or she will be voting electronically and to provide a member who did not indicate so with a paper ballot.

805 & 806

Torres

“New” Davis-Stirling

Effective January 1, 2014

Support

This bill is no longer active legislation – it is now the law. However, it doesn’t become operative until January 1, 2014. Refer to the ECHO Website for the complete text and more information.

54 echo-ca.org