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September 2008

A Journal for Community Association Leaders

echo-ca.org

Roof Drain Tips That Won’t Send You Down the Gutter ALSO INSIDE THIS ISSUE:

• Truth About Condo Conversion Budgets • Are Your Association Funds Well Insured? • Resolving Problems with Absentee Owners

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Love thy neighbor. (And your HOA, too) If a common interest development consisted of one house with two adults, 2.5 kids and 1.33 pets, it wouldn’t make much of an HOA. In the real world, that’s not the case. An HOA with multiple homes is an enormous task to manage, and County Bank is the key to making it seem small. County Bank offers specialized banking products & services and loan programs along with a dedicated HOA team with more than 15 years of experience to help you deal with the complexities that revolve around your HOA. Find out how easy we can make it. Call an expert now toll free at 866-920-5462.

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The ECHO Journal is published monthly by the Executive Council of 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 person should be sought.

Contents Protecting Your Funds on page 24

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Proactive Roof Drainage A proactive roof drainage plan is a good way to keep properties in good working order and avoid costly repairs. The investment for properly working rain gutters costs less than the damage caused by poorly maintained systems. Read the details in this article.

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Truth About Condo Conversion Budgets Buyers of condominiums converted from old apartments can wake up to find the home they bought is a nightmare of expense. The truth is that maintaining a 25–30 year-old building is not the same as a new one. Attorney Tyler Berding describes the way boards of such associations can find the truth for themselves.

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Are Your Association Funds Well Insured? Most of us have heard that the FDIC insures bank deposits up to $100,000. What some don’t realize is that the insurance limit is per depositor, not per account. There is only one insurance limit for an association at any one bank—$100,000. Accountant Michael Gartzke discusses this limit.

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Resolving Problems with Absentee Owners Renters and landlords are often blamed for many of the problems in an association. Why do rental units become a problem for the association? Read this article to gain insight into these concerns.

Departments 23 News from ECHO 34 ECHO Bookstore 36 Calendar of Events 38 ECHO Volunteers

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38 About ECHO 41 ECHO Marketplace 41 Advertiser Index

On the Cover Proactive Roof Draining Page 6

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September 2008 | ECHO Journal

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 2008 Executive Council of 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.

Executive Council of Homeowners, Inc. 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 9:00 a.m. to 5:00 p.m.

Board of Directors and Officers President David Hughes Vice President Karl Lofthouse Treasurer David Levy Secretary Dorothy Kopczynski Directors Paul Atkins Lori Burger Robert Rosenberg Richard Tippett Steven Weil

Jerry L. Bowles John Garvic Diane Rossi Wanden Treanor

Executive Director Oliver Burford Communications Coordinator Tyler Coffin Legislative Consultant Government Strategies, Inc. Design and Production George O’Hanlon ECHO Mission Statement The mission of ECHO is to advance the concept, interests and needs of homeowner associations through education and related services to board members, homeowner members, government officials and the professionals in the industry.


2008 Legislation at a Glimpse As of August 23, 2008 Bill No.

Author

Subject

Status

Position

Summary

AB 567

Saldana

Common Interest Development Bureau

Amended. Passed by Legislature

Support

Until January 1, 2014, would establish in the Department of Consumer Affairs the Common Interest Development Bureau. The Bureau would, among other things, provide board member education and training resources, and would be paid for by a biennial fee on associations. Authority to enforce CID law has been removed.

AB 952

Mullin

Mandatory Payment Plans

Amended. Senate Third Reading

Oppose

Would compel associations to provide payment plans to any owner who can provide documentation of a need for such a plan. The plan must be granted within 45 days of the request, provided the need is justified. An association must suspend lien enforcement proceedings against the delinquent owner, and may not impose a fee for the administration of the payment plan.

AB 1892

Smyth

Solar Energy Equipment Restrictions

Signed by Governor

Neutral

This bill would render void and unenforceable any restriction in the governing documents of an association that effectively prohibits or restricts the installation or use of a solar energy system.

AB 1921

Saldana

Statutory Revision of CID Law

Withdrawn for further study. To be introduced in 2009

Watch

This bill would renumber, consolidate, make minor changes to, and remove discrepancies in those sections of California law that govern common interest developments. If passed, the bill would replace the existing Davis-Stirling Act.

AB 2180

Lieu

Solar Equipment Approvals

Amended. Passed by Legislature

Support

This bill would compel associations to provide written approval or denial of an application to install a solar energy system. The approval or denial must be given within 60 days of the receipt of the application, or the application is deemed approved, unless the delay is the result of a reasonable request for additional information.

AB 2259

Mullin

Rental Restrictions

Amended. Passed by Legislature

Oppose

This bill would prevent common interest developments from imposing rental or lease restrictions upon an owner, unless that owner expressly consents to the impairment of that right. Would require owners to provide to the association verification of the date that the title was acquired.

AB 2806

Karnette

Board Member Education

Amended. Passed by Legislature

Support

Will require every member of the board serving at least 12 consecutive months, and each candidate for the board, to provide a statement indicating whether or not they have completed an educational course on the law of common interest developments. This information must be included in the ballot material for a board member election.

AB 2846

Feuer

Dispute Resolution Procedures

Amended. Passed by Legislature

Support

This bill would permit homeowners who are involved in a dispute over assessments with their association to pay under protest and commence an action in small claims court, provided the amount of the dispute does not exceed the court’s jurisdiction.

SB 127

Kuehl

CID Sale Disclosure Deadlines

Amended. Assembly Third Reading

Support

This bill would impose disclosure deadlines for the seller of a unit in a common interest development. Unless the parties agree otherwise in writing, it would require that all disclosures be made no later than 20 calendar days after the execution of a purchase agreement or the opening of escrow, whichever is later. An association must continue to provide documents to the seller within 10 days. The bill affects both mobile home and CID owners.

SB 1511

Ducheny

Super Liens

Amended. Passed by Legislature

Support

Would allow an association to request that the mortgagee of a property provide the name and address of anyone who purchases that property at a foreclosure sale. The mortgagee or trustee must provide the information within 15 business days.

ECHO Journal | September 2008

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By Chris Seeger

Proactive Roof Drainage Tips That Won’t Send You Down the Gutter

C

reating a proactive roof drainage plan is one of the best ways to keep properties in good working order and to avoid costly repairs such as water intrusion, dry rot, premature rusting, foundation challenges, termite infestation and staining. Almost every week our crews get on jobs that have been neglected and require unnecessary, costly repairs. This damage could have been avoided with regular roof, gutter and drain cleaning, minor repairs, rain gutter replacement and installation of appropriate gutter covers. The

investment to have rain gutter systems working properly will cost less than the damage that poorly maintained systems would cause. Roof, Gutter and Downspout Cleaning Annual (or sometimes biannual) roof, gutter and downspout cleaning are essential to the wellbeing of all residential and commercial structures. Debris that is left on roofs and in gutters and downspouts acts like a sponge. It holds water Continued on page 8

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and blocks the flow of water on its path towards the ground, often creating overflow of the gutters. A well-maintained system will allow water to pass freely to the ground. Appropriate water control on the ground is imperative. To avoid drainage going under foundations, use extension hoses or splash blocks. Splash blocks and extension hoses stop rutting and backflow of water under the foundation. Water under the foundation will cause serious structural damage if it is allowed to continue accumulating. In California, these extensions and blocks can be removed at the end of the rainy season and put back as the rains return in the fall.

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The investment to have rain gutter systems working properly will cost less than the damage that poorly maintained systems would cause. Roof debris is cleared with blowers and hand tools. Gutter debris should be scooped and bagged as opposed to simple hose spraying that usually makes a big mess. Once the majority of debris has been scooped, then the gutters and spouts are rinsed with highpressure water until they flow “clear and free.� Ground cleanup is the final step in this process. Crews will work from ladders or the roof, depending on roof type, pitch of the roof and the weather. Cleaning from the roof is faster and should be less expensive. Work on tile roofs needs to be completed by crews with tile experience. The Federal Occupational Safety and Health Administration (OSHA) requires a rope and harness system for safety for roof work above two building levels. Some projects require the use of a boom or scissor lift to access difficult areas or roofs that cannot be walked on; a certified boom/scissor lift operator is required by OSHA.

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Gutter and Downspout Repairs Identifying and fixing minor problems within a roof drainage system will help to avoid more costly repairs. Some of the most common problems and their solutions are listed below: 1. Leaking Gutter Seams—Seams are sealed on the inside of the gutter with an appropriate metal sealant, after the gutter has been cleaned. Silicon caulking is often used by on-site maintenance crews, but this does not work effectively. Regular cleaning will help to prevent this problem. Leaks that continue over long periods are likely to lead to premature deterioration of the gutters, dry rot and stains on the gutter and ground surfaces. 2. Gutter Coming Off—Gutter that is detached presents a safety issue for residents and a liability for property owners and managers. Gutter should be reattached with inside gutter straps secured to the rafter tails with 1.5 to 2.0-inch wood screws. All too often gutters have been quickly installed with nails or spikes that do not hold for long periods of time. Detached gutter also allows water to slip between the gutter and the roof’s edge, which leads to dry rot and staining. Regular gutter cleaning will help to avoid this challenge because the weight of debris and water stresses the hanging devices. Water weighs over 8 pounds per gallon. A property with clogged and overflowing gutters will likely be holding weights in the thousands of pounds. 3. Crushed Gutters and Spouts—It is common for residents or delivery services to back into gutters and downspouts with their vehicles. If this damage is not fixed, it is also likely to lead to dry rot and stains. Any quality gutter contractor will be able to match the existing gutter and spout size, style, material and color although some types are just too old and not available. 4. Downspouts Coming Off—Spouts that are not secured properly present a safety concern. It is common for downspouts to have been installed with nails or with screws without anchors on stucco. Downspouts should always be secured with screws; if anchors are not used on stucco structures, the screws will slip out. 5. Minor Rust—If steel gutters are rusting, as they inevitably do, it may be wise to paint the inside of the gutter with rust abatement Continued on page 11

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2008 VOLUNTEER OF THE YEAR Mike Muilenburg Mike Muilenburg was selected as the ECHO Volunteer of the Year for 2008 by the ECHO board of directors. This award recognizes the outstanding service and support he has contributed in advancing ECHO’s objectives and influence. This award was announced at the 2008 Annual Seminar where Mike was presented with a permanent crystal plaque and a bottle of champagne. Mike and his partner created Ekim Painting in 1979 as a company to specialize in servicing the CID industry. The company has been an active member of ECHO since 1982. He served as a member of the board of directors from 1994 to 2000. He is currently the chairperson of the Maintenance Resource Panel, which he has previously 10

September 2008 | ECHO Journal

chaired for several terms. He has contributed many articles to the ECHO Journal (and before, ECHO Newsletter) and made numerous presentations at ECHO regional and annual seminars. In addition he has been a long-time volunteer involved in the planning and implementation of many ECHO events. He graduated from UCLA in 1978 as a cum laude recipient of a Bachelor of Arts in Economics. He is a licensed contractor, with C-33 and B designations. Mike and his family live in Cupertino. He is an avid sports fan and enjoys travel. In recent years he has developed a strong interest in gourmet food and the tasting and collection of fine California and European wines.


Proactive Roof Drainage Continued from page 9

paint. This easy repair will increase the longevity of the gutters by many years. Gutter and Downspout Replacement Timely rain gutter replacement with the appropriate style, material, size and color is essential. Most gutters that need replacement are rusted. It is better to replace them before rust holes are visible. Rust can be seen on the inside of most steel gutters; however, if the exterior of the gutter bottom has texturing (little bumps) or orange spots, it is time to replace. Listed below are some considerations for replacing gutters and downspouts: 1. Material—Prepainted aluminum and steel gutters are the most common installations. These gutters are extruded at the job site for a precise fit. Steel (bonderized or galvanized) gutter also comes in “stick” form (pre-fabricated in 20–30 foot lengths), but they are inferior in that they are likely to have many seams and the cost to paint them is not included. The prepainted gutters are often called “seamless,” but they do have seams at corners and at the end caps. Prepainted gutters are caulked with metal sealants versus stick gutter that is soldered (typically more expensive). Both soldering and sealing are long-lasting processes to seal gutters. Additionally, stick gutter does not have a painted inside, which will lead to premature deterioration (rust). Copper is also available but is not viable for most multi-family residences because the cost is at least three times that of steel or aluminum. 2. Style—Most gutters on the west coast (especially at apartments and other multifamily occupancies) are fascia gutters. They look like a wedge and cover most fascia boards and rafter tails. The other common gutters are “OG” or “K” style. These gutters have more of a decorative look with bevels and edges on the face. They typically do not cover the fascia boards or rafter tails. Halfround gutters are becoming more common, but they are used mostly on upscale homes with tile roofs. 3. Size—The appropriate gutter size will accommodate the amount of water coming off the roof and fit the décor or the structure. Fascia gutters are measured by the back height and come in 5.5 inch and 7.25 inch sizes. The “OG” gutters are measured by the top opening and are available in 4, 5 and 6inch sizes.

Can You Afford To Use Your Air Conditioner This Summer? A poorly maintained air conditioner uses 10-30% more energy than necessary. During a cooling system inspection, filters are checked for damage and blockage. Air ducts are inspected for leaks; checked that they are connected, and evaluated whether they are the correct size for the system to operate efficiently. These are only a few of the items on our inspection check list that help us identify measures you can take to reduce your energy bills. Call to receive “How to make your cooling system more energy efficient”.

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4. Color—The prepainted, “seamless” aluminum and steel gutters come in about 30 color choices. These finishes are of the highest quality, baked-on enamels. Additionally, the coatings contain Kynar resin that helps the paint last in salty air environments, which we have in much of California. It is acceptable to paint these surfaces, but any applied paint coating will not look as sharp as the original baked-on finish. If coordinating a painting project with gutter replacement (a wise decision), choose gutter and spout colors first to make the paint choice easier. Stick gutter does not come painted, although the bonderized coating acts as a primer.

tractor simulate debris and rain conditions to ensure satisfaction or simply observe the tester section over the course of a few weeks during winter or late fall.

If your property does not have funding... free estimates provide a tool for planning for the coming years.

Gutter Covers Gutter covers come in a wide variety of styles and costs. A good gutter cover will allow water to pass into the gutter (no overflow), keep large pieces of debris from entering the gutter (small things flush out) and save the property money over time through reduced maintenance and repair costs. If debris (and the water it holds) is not in the gutter, the gutter will simply last longer and not need to be cleaned. Do not use plastics as they will lose their integrity with temperature 12

September 2008 | ECHO Journal

changes. Plastic and metal mesh screens do not work for more than a couple of seasons. They often end up creating more of a problem than a solution as debris gets through the holes and/or pushes the cover into the gutter. If there is any uncertainty as to the proper function of a cover, have a tester section installed at no charge. Then have the con-

Hiring a Contractor or Service Most contractors and rain gutter maintenance services will offer free estimates. Any good gutter company will easily be able to provide boards and managers with proof of worker’s compensation and liability insurance as well as references and work experience. Even if you feel that your property does not have funding to do the aforementioned services immediately, free estimates provide a tool for planning for the coming years. Free estimates allow boards and managers to use proactive planning to care for their properties properly. If your property does not budget these services, it is likely that costly repairs and premature replacements will be inevitable.

Chris Seeger is the co-owner and head of sales and operations at All About Gutters, Inc., a new member of ECHO. The company is located in Santa Clara.


Improving Your Association’s Financial Practices ECHO Association Finances Seminar Saturday, October 11, 2008 Crowne Plaza Hotel, Union City

Program Agenda 8:00 a.m. Registration and Continental Breakfast 8:45 a.m. Welcome and Introductions 9:00 a.m. A Director’s Fiduciary Responsibility 9:30 a.m. Basics of Accounting and Internal Controls

James Ernst, CPA

10:00 a.m. Preparing Good Operating and Reserves Budgets

Bill Erlanger, CPA

10:30 a.m. Break 10:50 a.m. Understanding Internal Controls and Fraud

Joelyn Carr-Fingerle, CPA

11:20 a.m. Employees vs. Independent Contractors

Robert Castle, CPA

12:10 p.m. What About Uncollected Assessments?

Don Haney, CPA

12:40 p.m. Questions and Answers—Ask The Experts

All Speakers

1:00 p.m. Sponsor Prizes 1:15 p.m. Adjourn

Registration Cost $40 Yes, reserve _____ spaces for the Finance Seminar. Amount enclosed: $__________ (attach additional names) Name: ______________________________________________________ HOA or Firm: ________________________________________________ Address: ____________________________________________________ City: __________________________ State: _____ Zip: ____________ Phone: ______________________________________________________ Visa/Mastercard No. _____________________ Exp. Date: ________ Signature: ___________________________________________________ Orders will not be processed without payment in full. Fees for cancelled registrations will not be refunded. Return with payment to: ECHO, 1602 The Alameda, STE 101, San Jose, CA 95126 Telephone: 408-297-3246; Fax: 408-297-3517


By Tyler P. Berding, Esq.

Learning the Truth About Condo Conversion Budgets

W

e have written on these pages before about the economic crisis that can befall the buyers of condominiums converted from old apartment buildings.1 Buyers wake up to find that the home they thought could be owned and maintained with an attractively low monthly assessment turns out to be a nightmare of hidden expense. Understandably, they want to know the truth, and the truth is that a 25 to 30 year-old building just cannot be evaluated with the same criteria that you would use for a new one; and the 1 Berding, “Condominium Conversions: Owner Equity at Risk,” ECHO Journal, June 2006

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financial plan used to maintain it also cannot be the same as one that would be used for new construction. Unfortunately, that is precisely what the State of California and many local municipalities did when they permitted thousands of old apartment units to be sold to consumers. The California Department of Real Estate requires that certain disclosures be made to prospective buyers. These include the monthly maintenance assessment and the budget upon which it is based. Unfortunately, the DRE does not usually take into consideration that the building is old and allows the maintenance budget and reserve accounts to

be computed as if the project had just been completed. The California Civil Code requires that the budget for long-term reserves be based on a “visual inspection of the accessible areas” of the project.2 The purpose of this inspection is to identify all of the “major components that the association is obligated to repair, replace, restore, or maintain that, as of the date of the study, have a remaining useful life of less than 30 years.”3 That’s all well and good as long as we are talking about 2 California Civil Code Section 1365.5(e)


new buildings. There, just the usual components found in a reserve budget (e.g. roofs, paint, and asphalt) have a service life of less than 30 years. Also, as you walk around the project, you can be pretty sure that if it looks good on the outside, it’s probably OK on the inside (within the walls, under siding, beneath the roof membrane, etc.) But with an old apartment house, those presumptions are unreliable. First, over the course of 25 years, many things can happen to the inner areas of an essentially all-wood 3 California Civil Code Section 1365.5(e)(1)

structure. Water leaks can cause dry rot in framing and roof decking. Constant exposure of such wood components as balconies, staircases, and railings to the weather will allow those components to rot if not adequately sealed or flashed. Plumbing can literally wear out. Electrical lines and fixtures can fail. None of these components is likely to be noticed if the “visual inspection of accessible areas� is too casual and limited to a surface inspection. Those components, when new, probably had a service life exceeding 30 years and hence would not have been required to be part of the reserve budget. But if we have a

building that is itself that old, it is unrealistic to expect that those same components will last another 30 years, especially if they have already begun to fail. Of course, if you were to include all of the components of a 30 yearold building that are wearing out in the reserve budget as the statute requires, the monthly assessments that would have to be paid by the owners would jump appreciably from those based on a new-construction budget, and few owners could afford that. And the intersection of those two issues states the problem of condominium conversions in a nutshell: underfunding of reserve and maintenance budgets due to unrealistic ECHO Journal | September 2008

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expectations and inadequate inspections— most often to facilitate the sale of the units by keeping assessments artificially low. So, what do you do if you are on the board of directors of a condominium project that was converted from an old apartment house of say, 20+ years of age? Here’s a step-by-step outline: 1. Scrutinize the financial plan. The association’s budget can be very revealing if it is understood. There are two parts of an initial conversion budget that relate to the condition of the buildings: operating budget funding for annual maintenance and reserve budget funding for long-term replacements and repairs. If the operating budget has categories that provide funding for gradual repair or replacement of components like wood siding, for example, in some cases that might be an acceptable substitute for wholesale replacement at some future time. For example, if there is an operations line item called “Miscellaneous Carpentry” that is intended to replace portions of the exterior siding and trim, either as needed or in conjunction with repainting the project, that might be enough to stay even with gradually deteriorating siding, assuming sufficient funds are provided. A similar line item could also be found in the reserve budget itself, perhaps as a portion of the painting reserve, to accomplish the same purpose—gradual replacement of deteriorating wood products on the buildings. Or, using a more traditional approach, include a line item for the complete replacement of exterior siding and trim at some future time. The calculation for that is, roughly: Calculate the quantity of the component to be replaced; determine the cost of replacement; estimate the remaining service life of the component; calculate an annual contribution to that component’s reserve fund that will fund replacement at the end of the component’s service life. Looking at that formula suggests a number of ways that it can be underestimated. First, the component can be completely missing from the budget. In other words, there is no line item for this component at all. It was overlooked and not included when the budget was prepared. Second, the component may be included, but the quantities to be repaired have been understated. Third, the estimated cost of repair is wrong; or fourth, the estimated remaining life of the component is overestimated. Any of these, or 16

September 2008 | ECHO Journal


a combination, will deprive the association of adequate funding. Of course, most board members are not experts at estimating which components should be included or an adequate budget to fund their replacement. In fact, many of the components that we have discussed here are not even visible to a casual observer or even an expert one when the deterioration is beneath the siding. And that’s why we hire an expert to do more than the usual reserve study. But first, here’s a way to tap into another valuable source of information. 2. Prepare a questionnaire to the owners. The owners are a ready source of information on the condition of the project. They will, of course, direct management’s attention to active leaks or other obvious maintenance or repair issues, but they also may observe less obvious symptoms of decay or other failure that will help to guide the investigators. A written questionnaire is often used to gain this information. Questions relating to, for example, a history of leaks into their individual unit might suggest locations where hidden damage has occurred. A report of cracks in patios or foundations could identify a soils problem. The responses to the questionnaires are then compiled into a report that is provided to the experts who will conduct the study below. 3. Commission a “super” reserve study. As stated above, reserve studies as required by the code are usually limited to areas that are visible and accessible. For an older building however, this often will fail to uncover problems that can be expensive to repair. An architectural firm or general contractor, who is skilled at inspections of this type, should be hired to perform the association’s reserve study and to include in the scope of that study some limited destructive testing. What’s “destructive testing?” It’s not as bad as it sounds—basically some of the exterior skin of the building is removed to allow access to inner areas where the effects of water leaks can be noted, if they exist. This is done on a random basis unless there is evidence of leaks in a particular area, and if so, that area is included. For wood-sided buildings, some of the siding would be removed. On stucco buildings, the trim around windows would be removed, but unless there was evidence of leaks into the interior, the stucco would usually not be cut. Balconies, decks, and exterior stairways would be examined for signs of deterioration and portions removed, especially adjacent to

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the building, if it appeared that water had access to the interiors. Roof openings would depend upon the type of roof, the history of any leaks, and whether access to the underside of the roof is available through an attic. If owners report plumbing leaks, one or two small sections of pipe should be removed to examine them for signs of deterioration. Components that are missing from the budget altogether will usually account for the greatest percentage of underfunding. This is why some destructive testing is often necessary in older buildings to uncover their true condition. A proper study will identify those components that should have been included in the initial reserve funding, determine the costs of their repair and replacement, and establish the likely remaining service lives of each of those components. That information can then be compared to the funding plan provided by the seller of the project.

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4. Compare the reserve study findings to the original budget. The initial budget is the basis for the monthly assessments paid by owners. The amount of the monthly assessment is relied upon, not only by prospective buyers in determining affordability, but also by lenders in deciding whether the buyer can qualify for a loan. If the assessment is kept artificially low, for whatever reason, the buyer and the lender will be misled. When the results of the new reserve study are compiled and compared to the calculations used in the initial budget, it may indicate that the initial budget accurately anticipated the cost of

Continued on page 20 18

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Condo Conversion Budgets

AUTHOR COMMENTS

Continued from page 18

Hidden Opportunities for New Housing: It Happened in Houston Earlier this year, we wrote: Like old apartment complexes, many older common interest developments were built in the sixties and seventies when land was abundant and densities were low. These projects are often spread over many acres and rarely exceed two stories in height with very low density per acre. That limitation might have been appropriate when their locations were semi-rural, but today many of the cities we have been discussing in the San Ramon Valley, and in similar suburban areas elsewhere, have vibrant commercial districts that support a great deal of automobile and pedestrian traffic. These sites could easily handle taller, higher-density buildings and would be ideal candidates for redevelopment. This was part of a longer article entitled, “Back to the Housing Future: Will the Old Suburbs Become the New Urban Core?”1 We discussed how older developments adjacent to expanding urban cores could be redeveloped into higher-density, high-rise housing. Now we have a real-life example of this strategy. In Houston, Texas, a team of real estate specialists recently consolidated 108 condominium units into a single, saleable parcel. The community association is built on almost 5 acres of land—or roughly 20 units to an acre—decidedly low-density for attached housing. The developers looking to purchase the parcel are estimating that, with high-rise construction, they can get closer to 100 units per acre on that site. According to an article in the Houston Business Journal, old condo complexes in welllocated areas are in demand in Houston. The writer states: “But land, as it has been pointed out through the ages, is the one thing they

aren’t making more of, and there are plenty of developers looking at Inner-Loop land who are willing to pay for it. Two-story condo complexes built more than 20 years ago inside Houston’s Loop 610 are definitely on the endangered list in 2008.”2

1 Berding, “Back to the New Housing Future: Will the Old Suburbs become the new Urban Core?” in ECHO Journal, March 2008.

2 Bradford, Nicole, Houston Business Journal, July 24, 2008.

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One of the realtors is quoted as saying: “Developers will come to us seeking a particular tract of land. The hard part is getting all the owners to agree on the sale, and that takes a lot of work. When you take into account the number of owners you have to talk to and agree on price points, it could take up to a year.”3 One deal took over a year to put together and negotiations had to be undertaken with all 108 owners. However, this particular development was attractive for redevelopment because the complex is “functionally obsolete;” it will cost more to repair than the project is worth in its present configuration. This is an example of how the real estate market can impose an end strategy on a condominium complex that has reached the end of its useful life. Texas law may be more conducive to this strategy, however. California provides no statutory way to recombine condo interests into a single saleable parcel, other than to secure the approval of 100 percent of the unit owners or perhaps to amend the governing documents to give the board of directors the necessary authority to negotiate a sale. Regardless of how it’s done, or where, aging community associations could provide an alternate option for redevelopment in fast-growing urban areas.

3 Ibid.

operating and maintaining the project—or did not. If the projections in the initial budget are within, say 10–15 percent of the findings of the new reserve study: we would probably not be too concerned. However, if the funding gap is greater than 15–20 percent, then over time that gap will amount to a significant shortfall. 5. Get legal advice on whether the findings of the study justify a claim against the seller of the project. If a significant shortfall exists, the seller may be liable for the difference between what was disclosed to potential buyers and the true cost of ownership. Recovery of this shortfall usually takes the form of a claim asserted by your attorney. If the gap is large enough and negotiations to close it fail, litigation may be recommended. It is also a good idea if your attorney is consulted before the questionnaire or the reserve study is undertaken so that he or she can guide the association. Conclusion Condominium conversions are not a new concept; we have seen this form of housing created and sold many times over the years. But what is new in the most recent round of conversions is that they seem to be more and more undertaken with older buildings. Buildings that are almost entirely built of wood (siding, decks, stairways, etc.) are especially bad candidates for conversion because their need for maintenance and repair is usually more acute. When you add the ravages of 20–30 years of exposure to the weather, the odds of finding hidden damage that will negatively impact your reserve budget are greatly increased. Condominium converters have three choices: (1) they can rehabilitate the buildings and put them in a condition that justifies the monthly assessment that they disclosed, (2) instead of rehabilitating the buildings, they could put the cash into the association’s reserves so that the rehabilitation can occur over time, or (3) not do either, but instead set monthly assessments high enough to raise the cash necessary to repair the buildings. What they can’t do is none of the above. And unfortunately, we Continued on page 22


Condo Conversion Budgets Continued from page 20

have seen “none of the above” more times than not. In their search for truth, the buyers of a conversion may find that a monthly assessment, kept artificially low, was used as a means to promote the project. The incentive to set monthly assessments low also arises from the need to qualify the maximum number of buyers. If a low monthly assessment seemed too good to be true, it probably was, and there may be plenty of reasons to be suspicious about what was sold. In the case of a condo conversion, the truth isn’t that hard to find.

Tyler Berding is a founding partner of Berding & Weil, LLC, a community association law firm located in Alamo, CA. He has taught real estate and community association law at California State University East Bay and is the immediate past president of ECHO. He is a frequent contributor to the Journal. Questions or comments can be directed to him at berding-weil.com or condoissues.com. 22

September 2008 | ECHO Journal


News from ECHO

Resolving Problems with Absentee Owners Problems with absentee property owners are a common complaint from boards of directors. Renters and landlords are blamed for many of the problems in an association. Some associations have amended their governing documents to limit the number of rentals allowed in their associations. Many managers concur that the “problem” units in the associations they manage are more likely to be occupied by a non-owner resident than by an owner resident. Why do rental units become a problem for the association? Consider at minimum the following two possibilities: Poor choice of renters by the landlord—A renter may not fully understand or appreciate the lifestyle changes required for a successful residency in a highdensity development. Uninformed renters—Renters are sometimes not given a copy of the rules and regulations at the time they signed the rental agreement. To avoid problems with renters, use the techniques of education and enlistment. Make sure all your residents (both tenants and owners) are educated

about the rules and what is expected of them. Enlist their support and cooperation. Don’t wait until there is a problem to make contact. The following items are some ways to carry out education and enlistment: • Create a resident handbook. • Form an active social committee. • Involve non-resident owners. • Develop a welcoming committee.

Are All Your Association Funds Insured? Most of us know that a government agency, the Federal Deposit Insurance Corporation (FDIC), insures deposits up to $100,000. What some people don’t realize is that the insurance limit is per depositor, not per account. For example, banks will suggest that you can increase your insurance limit by setting up individual accounts, joint accounts or accounts with your children to obtain more than $100,000 of deposit insurance with their bank. In a homeowner association, there is only one depositor. The association is usually a corporation or occasionally it is unincorporated. Whether the funds are operating or reserves, checking, money market funds or CDs, there is only one insurance limit

for an association at any one bank—$100,000. Therefore if an association maintains a $10,000 operating account, a $50,000 money market account and a $95,000 CD with the same bank (a total of $155,000), only $100,000 of these funds are insured, leaving $55,000 uninsured.

Proactive Roof Drainage Creating a proactive roof drainage plan is one of the best ways to keep properties in good working order and to avoid costly repairs such as water intrusion, dry rot, premature rusting, foundation challenges, termite infestation and staining. Every week crews get on jobs that have been neglected and require unnecessary, costly repairs. This damage could have been avoided with regular roof, gutter, drain cleaning, minor repairs, rain gutter replacement and installation of an appropriate gutter cover. The investment to have rain gutter systems working properly will cost less than the damage that poorly maintained systems will cause. Annual (or sometimes bi-annual) roof, gutter and downspout cleaning are essential to the well being of all residential and commercial structures. Identifying and fixing minor problems within a roof drainage system will help to avoid more

costly repairs. Some of the most common problems are these: 1. Leaking Gutter Seams 2. Gutters Coming Off 3. Crushed Gutters and Spouts 4. Downspouts Coming Off 5. Minor Rust Timely rain gutter replacement with the appropriate style, material, size and color is essential. Most gutters that need replacement are rusted. It is better to replace them before rust holes are visible. A good gutter cover will allow water to pass into the gutter (no overflow), keep large pieces of debris from entering the gutter (small things flush out) and save the property money over time through reduced maintenance and repair costs. Even if you feel that your property does not have funding to do these services immediately, get a free estimate to provide a tool for planning for the coming years. If your property does not budget these services, it is likely that costly repairs and premature replacements will be inevitable. Important Upcoming Events Thursday, September 18 San Francisco Luncheon 11:45 a.m. Speaker: Kerry Mazzoni Topic: Insider’s View of Legislation in California St. Francis Yacht Club San Francisco Saturday, September 20 Central Coast Fall Seminar 8:00 a.m. to 1:00 p.m. Best Western Seacliff Inn, Aptos Saturday, October 11 Association Finances Seminar 8:00 a.m. to 1:00 p.m. Crowne Plaza, Union City ECHO Journal | September 2008

23


By Michael J. Gartzke, CPA

How Well Are Your Association Funds Insured? M

ost of us have heard that a government agency, the Federal Deposit Insurance Corporation (FDIC), insures deposits up to $100,000. What some people don’t realize is that the insurance limit is per depositor, not per account. For example, banks will suggest that you can increase your insurance limit by setting up individual accounts, joint accounts or accounts with your children to obtain more than $100,000 of deposit insurance with their bank.

In a homeowner association, there is only one depositor. The association is a corporation (most of the time) or an unincorporated association (occasionally). Whether the funds are operating or reserves, checking, money 24

September 2008 | ECHO Journal

market funds or CDs, there is only one insurance limit for an association at any one bank—$100,000. Therefore if an association maintains a $10,000 operating account, a $50,000 money market account and a $95,000 CD with the same bank (a total of $155,000), only $100,000 of these funds are insured, leaving $55,000 uninsured. Incidentally, this $100,000 limit has not been raised since 1980. When a CPA reviews the financial statements of an association, one of the issues that they consider is whether the association has uninsured funds. This disclosure, if significant, is made in the Notes to the Financial Statements and can also be included in any

separate correspondence between the CPA and the association. For many years, the risk of loss from uninsured funds has been considered to be minimal. There have been few bank failures in the past 15 years. Even when there were numerous bank failures in late 1980s, many times an acquiring bank would assume all the deposits of the failed bank, even those deposits greater than $100,000. Then, on July 11, 2008, along comes the news that IndyMac Bank, headquartered in Pasadena with 33 branches in Southern California, was taken over by Federal regulators. According to some early news reports, a Congressman noted his concern about the bank in late June, which led to substantial


withdrawals of funds by depositors. Bank regulators maintain a secret list of about 90 banks that they believe are in trouble and to which they pay extra attention, but IndyMac Bank was not even on that list.

you to share proportionately in any funds recovered through the disposal of the assets of IndyMac Bank. This means that you will eventually recover some of your uninsured funds.�

According to the initial press release, the FDIC will cover all insured deposits in this bank (up to $100,000) plus 50 percent of the uninsured deposits. So, in the example of the association in the first paragraph, there would be insurance on the first $100,000, plus half of the $55,000 ($27,500), leaving $27,500 as a potential loss for the association. “If it is determined that you have uninsured funds, the FDIC will generate and mail to you a Receiver Certificate. The Certificate entitles

If your association has uninsured funds, you should consider redistributing some of them so that all your accounts are insured. Checking and money market accounts are the easiest accounts to move because they have no early withdrawal penalties. Certificates of Deposit, if closed prior to maturity, have penalties for early withdrawal based upon the term of the investment, with higher penalties for longer-term investments.

Many banks have been negatively impacted by the home mortgage crisis and other loan losses. Some of our area’s banks are privately or closely held, which makes it more difficult to determine how sound the bank is. One local bank has seen its stock price drop by 2/3rds in the past two years. So it would be prudent for any association with deposits greater than $100,000 in any one bank to consider reducing its exposure to uninsured funds as soon as practical. What about Money Market accounts that are not in banks? Some associations have cash in money markets at stock brokerages Continued on page 27 ECHO Journal | September 2008

25


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Association Funds Insured Continued from page 25

such as Fidelity Investments, Merrill Lynch, Charles Schwab, etc. Accounts at these kinds of companies are insured by the Security Investors Protection Corporation (SIPC). According to sipc.org, SIPC insurance does not work the same way as the FDIC in terms of blanket protection of losses. The SIPC gets involved when the brokerage with which you have cash, stocks and other securities gets into financial trouble and these assets go missing. The SIPC does not insure brokerage money market accounts. For example, here is the disclaimer on the Schwab Money Market Fund: “An investment in a money market fund is neither insured nor guaranteed by the Federal Deposit Insurance Corporation (FDIC). Although money market funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.” And here is what is said about the Fidelity Cash Reserves Fund: “An investment in the fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund. The rate of income will vary from day to day, generally reflecting changes in shortterm interest rates. Entities located in foreign countries can be affected by adverse political, regulatory, market, or economic developments in those countries. Changes in government regulation and interest rates and economic downturns can have a significant negative effect on issuers in the financial services sector. A decline in the credit quality of an issuer or the provider of credit support or a maturity-shortening structure for a security can cause the price of a money market security to decrease.” At the end of the day, nearly all bank accounts and money market funds carry some element of risk. It is important for you to understand what the risk is and take any steps that you can to help minimize your risk and your association’s exposure to loss.

Michael Gartzke, an ECHO member, is a CPA with a large homeowner association practice in the Santa Barbara area. He is also the coordinator of the South Bay Homeowners Group with a membership of about 120 associations. He is a frequent contributor to the ECHO Journal.

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Directory

UPDATES Updates for listings in the 2008 ECHO Directory of Businesses and Professionals.

New Associate Members Popular Association Banking 6230 Stoneridge Mall Rd., 1st Floor Pleasanton, CA 94588 Tel: 925-730-2183 Fax: 925-847-15886 Contact: Bryan Wong www.assosciationbankers.com Email: bwong@bpop.com

Popular Association Banking is a nationwide leader in providing community association financing, offering state-of-the-art lockbox services, as well as CDARS速 program providing FDIC insurance coverage up to $50 million.

Changes to Member Listings Richard Joseph & Company 910 Greg Street Sparks, NV 89431 Contact: Michael Gardiner Tel: 415-596-1744 Fax: 775-358-2490 www.rjcompany.com Email: mgardiner@rjcompany.com

28

September 2008 | ECHO Journal


Association Legal Matters By Diane Marie Rossi, CCAM

Resolving Problems with Absentee Owners Problems with absentee property owners are a common complaint from boards of directors. Renters and landlords are blamed for many of the problems in an association. Some associations have amended their governing documents to limit the number of rentals allowed in their associations. As a professional community association manager for over eighteen years, I must concur that the “problem” units in the associations I manage are more likely to be occupied by a non-owner resident than by an owner resident. Why do rental units become a problem for the association? Consider at minimum the following two possibilities: 1. Poor choice of renters by the landlord: A renter may not fully understand or appreciate the lifestyle changes required for a successful residency in a high-density development. They may like to “party” late into the night, play their stereo or a musical instrument too loudly, have too many cars, or have animals or children who are allowed to play in the common areas without supervision. Sometimes to obtain the maximum rental income, the landlord permits a large number of individuals to rent the unit so that the unit appears more like a rooming house rather than a single family resi-

dence. Many times in households with several unrelated adults, frequent numerous guests (also with cars) cause parking and noise problems. However, these traits are by no means limited to renters, and you may recognize one or more of these situations in your own association. 2. Uninformed renters: Renters are sometimes not given a copy of the rules and regulations at the time they signed the rental agreement. The renter was not informed there is a limit on the number of vehicles that can be parked inside the development (which is invariably a number less than the number of cars they own). They didn’t know that the spa closes at 10:00 p.m. They were not told their friends couldn’t park in the fire lane when coming by “for only a few minutes.” No one told them they couldn’t have two dogs and two cats. The “rules-breakers” place the board of directors and the association manager in the role of being a policeman. No one wants to be a policeman in an association. It is one of the most undesirable elements of being a manager or board member. Avoiding Problems with Renters Use the techniques of education and enlistment. Make sure all your residents (both tenants ECHO Journal | September 2008

29


and owners) are educated about the rules and what is expected of them. Enlist their support and cooperation. Don’t wait until there is a problem to make contact. The following items are some ways to carry out education and enlistment. 1. Create a resident handbook. Include information on parking regulations, quiet hours, pool and spa rules and hours of operations, garbage can storage, skateboards, and pets. Publish the name and phone number of the manager or the board members if your association is self-managed. Give several copies to each non-resident owner. 2. Form an active social committee. Invite residents and owners to get together periodically. Associations that I manage organize potluck barbecues, Easter egg hunts for the 30

September 2008 | ECHO Journal

children, Christmas caroling, Halloween parades through the complex, and volunteer workdays. In these associations almost everyone knows everyone else, and problems are minimized. Residents ask each other the important questions: “Does my dog bark when I’m not home?” or “Is my teenage son’s music too loud?” 3. Involve non-resident owners. Establish a telephone tree to call owners and personally invite them to come to the annual meeting. Increase attendance at your annual meeting by distributing flyers a few days before to remind owners, combine the meeting with a social event, consider a door prize. Consider changing the day and time (check bylaws first). Talk about resident issues at the annual meeting. Help non-resident owners to

understand that the manager and the board of directors are not landlords. Encourage them to be a good neighbor by choosing a good tenant for their unit. Encourage them to run for the board of directors. Some of the best board members I’ve worked with were non-resident owners. 4. Develop a welcoming committee. Personally deliver a letter of welcome to all new owners and residents. Give them a copy of your resident handbook. Answer questions about the development. Create a sense of community in your homeowners association. Make new residents feel like a “wanted” member of the community. Most people want to be a good neighbor. It is much easier to solicit support and cooperation before a problem occurs.


Obtaining Compliance from Rules Breakers You have developed your association’s rules and distributed them to all residents and owners. You should also develop a fining schedule and distribute it to all residents and owners. Although the legal requirement is that the fining schedule must be distributed only once unless changes are made, I strongly recommend you mail copies every year to all owners and tenants. A good time to distribute the schedule is with your annual disclosure packet. I recommend the schedule have a provision for at least one warning before implementing a fine. Fines should be used as a tool to obtain compliance when a polite request to comply is not successful. Sometimes, even after doing everything right, you still have a rule breaker. They probably know the rules; they either think the rule is not “fair” (my mother always told me life is not fair); doesn’t apply to them; or feel they can continue to get away with the violation. Those associations with the highest success rate in resolving violations have at least two board members willing to try the personal touch. A formal letter of violation is prepared to outline and document the violation for the record. The letter is personally delivered to the resident in a friendly, nonjudgmental environment by two members of the board. This face-to-face meeting serves to introduce the board members, explain what the problem is and solicit the resident’s help in resolving the problem. I recommend two people (there is comfort in numbers), but more than two can seem intimidating, especially if you are meeting with only one resident. Don’t act like a policeman. Act like a neighbor. If the behavior continues, mail a letter to the owner of the unit. If the unit is tenantoccupied, send a copy to the tenant. Reference your earlier contact with the resident. Request that the owner attend your next board meeting to discuss the problem personally. Tell them the board intends to take action at this meeting to levy a fine. Give them an opportunity to attend the meeting to show cause why the fine should not be levied. Fewer than half of the owners receiving such a letter will actually attend. Expect to receive a telephone call from a non-resident owner saying they have spoken to the tenant about the problem and assuring you it will not happen again. The resident owner may or may not respond. However, in more than 90 percent of the cases the problem will

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Many boards will decide to waive a fine if compliance is obtained. If you do take this action, send a letter to the owner and resident advising them of the action of the board. Again, as a board you appear fair, forgiving, and a good neighbor. You show that the intent of the threatened fine was not to generate revenue for the association but to obtain compliance with the rules of the association. In the cases where the behavior continues, assess the fine. Make sure the fining schedule has incremental fines for multiple violations. Send the fine invoices to the owner, not the tenant. The association has no legal relationship with the tenant. If the tenant continues to break the rules and the owner continues to obtain monetary fines, most landlords will give notice to terminate the rental agreement of the offending tenant.

Diane Rossi is the president of Shoreline Property Management in Santa Cruz. She is a member of the ECHO board of directors and a member and past chair of the Central Coast Resource Panel.


By Linda Alexander, CMCA, PCAM

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33


Books and DVDs from ECHO

Homeowners Association and You $13.00 2008 ECHO Business & Professional Directory $20.00 This directory lists all business and professional members of ECHO as of December 2007. Current addresses, telephone and fax numbers, email addresses, and a short description are included. This directory is an invaluable tool for locating service providers that work with homeowner association.

Condominium Bluebook 2008 Edition $18.00 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.

This is a valuable guide to all aspects of community association living designed as a practical problem solving guide. Written by two long-time association residents, it provides an insightful overview of community living from the viewpoint of experienced owners in readable language. Recently revised and expanded.

The Board’s Dilemma Homeowners Associations— How-to Guide for Leadership $35.00 This well-known guide and reference is written for officers and directors of homeowner associations who want to learn how to manage and operate the affairs of their associations effectively.

Questions & Answers About Community Associations $18.00 For 12 years, Jan Hickenbottom answered homeowners’ questions in her Los Angeles Times column on community associations. Now collected in one volume, readers can find answers to almost any question about CIDs.

Robert’s Rules of Order $7.50 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.

Reserve Fund Essentials $18.00 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.

This edition contains the 2008 version of the Davis-Stirling Common Interest Development Act, the Civil Code sections that apply to common interest developments, and selected provisions from the Civil, Corporations, Government and Vehicle Codes important to community associations.

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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.

The Condo Owner’s Answer Book

Community Association Statute Book—2008 Edition $10.00

California Building Guidelines for Residential Construction $52.50 This easy-to-read manual is an excellent tool to understand a new home. It contains chapters covering more than 300 conditions that have been sources of disputes between homeowners and builders, offers homeowner maintenance tips, and defines the standards to which a residence should be built.

CID Leadership Two-Disc DVD set $15.00

An excellent guide to understanding the rights and responsibilities of condo ownership and operation of homeowner associations. The question-and-answer format responds to more than 125 commonly-asked questions in an easy to understand style. A great resource for newcomers and veteran owners.

$30.00

Board—An orientation for new board members and a refresher for current members. Meetings—How to conduct effective meetings that stay focused and achieve results. Reserves—How adequately-funded reserves prevent problems in associations. Insurance—Considers insurance to protect multi-million dollar community assets.


Dispute Resolution in Homeowner Associations $20.00 This publication has been completely revised to reflect new requirements resulting from passage of SB 137.

Publications to answer your questions about common interest developments Now Order Online at echo-ca.org

Bookstore Order Form

Board Memberâ&#x20AC;&#x2122;s Guide for Contractor Interviews $20.00 This report is a guide for directors and managers to use for interviews with prospective service contractors. Questions to find out capabilities and willingness of contractors to provide the services being sought are included for most of the contractor skills that associations use.

Executive Council of Homeowners 1602 The Alameda, Suite 101, San Jose, CA 95126 Phone: 408-297-3246 Fax: 408-297-3517 TITLE

QUANTITY

SUBTOTAL CALIFORNIA SALES TAX (Add 8.25%) TOTAL AMOUNT

Board Memberâ&#x20AC;&#x2122;s Guide for Management Interviews $20.00 This guide for use by boards for conducting complete and effective interviews with prospective managers takes the guesswork out of the interview process. Over 80 questions covering every management duty and includes answer sheets matched to the questions.

Yes! Place my order for the items above. q Check q Visa q Mastercard Credit Card Number Exp. Date

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Name (please print) Association (or company) Address City Daytime Telephone

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Calendar of Events

Mark these events in your calendar Thursday, September 4 North Bay Resource Panel 9:30 a.m. Contempo Marin Clubhouse 400 Yosemite Rd., San Rafael

Saturday, September 20 Central Coast Fall Seminar 8:00 a.m. to 1:00 p.m. Best Western Seacliff Inn Aptos

Friday, September 5 East Bay Resource Panel 9:30 a.m. Angius & Terry 1900 N. California Blvd. Suite 950, Walnut Creek

Wednesday, October 1 Maintenance Resource Panel 12:00 Noon ECHO Office 1602 The Alameda, Ste. 101 San Jose

Monday, September 8 Accountants Resource Panel 6:00 p.m. Francesco’s Restaurant Oakland

Friday, October 3 East Bay Resource Panel 9:30 a.m. Angius & Terry 1900 N. California Blvd. Suite 950, Walnut Creek

Tuesday, September 9 Central Coast Resource Panel 12:00 Noon Pasatiempo Inn, Santa Cruz Wednesday, September 17 Wine Country Resource Panel 11:45 a.m. Eugene Burger Mgmt. Co. 6600 Hunter Dr., Rohnert Park Thursday, September 18 San Francisco Luncheon 11:45 a.m. to 2:00 p.m. St. Francis Yacht Club San Francisco

Wednesday, October 8 South Bay Resource Panel 12:00 Noon Il Fornaio 302 Market St., San Jose Saturday, October 11 Finances and Accounting Seminar 8:00 a.m. to 1:00 p.m. Crowne Plaza 32083 Alvarado-Niles Road Union City

the r o f e t a d is Keep th Seminar l a u n n A O ECH 2009 , 3 1 – 2 1 e n u J

Wednesday, October 15 Wine Country Resource Panel 11:45 a.m. Eugene Burger Mgmt. Co. 6600 Hunter Dr., Rohnert Park Friday, October 17 Annual Membership Meeting 10:00 a.m. ECHO Office 1602 The Alameda, Ste. 101 San Jose Saturday, October 25 Mastering the Board Game 8:00 a.m. to 4:00 p.m. San Ramon Marriott 2600 Bishop Drive San Ramon Saturday, November 1 Peninsula Fall Seminar 8:00 a.m. to 1:00 p.m. Hyatt Regency 1333 Bayshore Hwy. Burlingame Thursday, November 6 North Bay Resource Panel 9:30 a.m. Contempo Marin Clubhouse 400 Yosemite Rd., San Rafael

Friday, November 7 East Bay Resource Panel 9:30 a.m. Angius & Terry 1900 N. California Blvd., Suite 950, Walnut Creek Monday, November 10 Accountants Resource Panel 6:00 p.m. Francesco’s Restaurant, Oakland Tuesday, November 11 Central Coast Resource Panel 12:00 Noon Pasatiempo Inn, Santa Cruz Wednesday, November 19 Wine Country Resource Panel 11:45 a.m. Eugene Burger Mgmt. Co. 6600 Hunter Dr., Rohnert Park

Regularly Scheduled Resource Panel Meetings Resource Panel Maintenance North Bay East Bay Accountants Central Coast South Bay Wine Country Legal 36

September 2008 | ECHO Journal

Meeting

Location

First Wednesday, Even Months First Thursday, Odd Months First Friday, Monthly Second Monday, Odd Months Second Tuesday, Odd Months Second Wednesday, Even Months Third Wednesday, Monthly Quarterly

ECHO Office, San Jose Contempo Marin Clubhouse, San Rafael Angius & Terry, Walnut Creek Francesco’s Restaurant, Oakland Pasatiempo Inn, Santa Cruz Il Fornaio Restaurant, San Jose Eugene Burger Management Co., Rohnert Park Varies


ECHO Journal | September 2008

37


Honor Roll

About

ECHO Honors Volunteers Mike Muilenburg 2008 Volunteer of the Year ECHO Resource Panels Accountant Panel William Erlanger, CPA, 415-981-9350 Central Coast Panel Jim Harmon, 831-425-3622 East Bay Panel Scott Burke, 408-536-0420 Legal Panel Mark Wleklinski, Esq., 925-691-1191 Maintenance Panel Mike Muilenburg, 408-996-3897 North Bay Panel Diane Kay, CCAM, 415-846-7579 Stephany Charles, CCAM 415-458-3537 San Francisco Panel Jeff Saarman, 415-749-2700 South Bay Panel Geri Kennedy, CCAM, 650-348-2691 ext. 1006 Kimberly Payne, 408-200-8470 Wine Country Panel Ron Hamann, 707-584-4788

Legislative Committee Paul Atkins Jeffrey Barnett, Esq. Sandra Bonato, Esq. Jerry L. Bowles Joelyn Carr-Fingerle, CPA John Garvic, Esq., Chair Geri Kennedy, CCAM Wanden Treanor, Esq.

38

September 2008 | ECHO Journal

2008 Annual Seminar Speakers Jeffrey Barnett, Esq. Sandra Bonato, Esq. Lori Burger, PCAM, CCAM Doug Christison, PCAM, CCAM Rolf Crocker, CCAM Jeffrey Draeger James Ernst, CPA Lisa Esposito, CCAM John Garvic, Esq. John Gill, Esq. Sandra Gottlieb, Esq. Walt Grady, CPA Beth Grimm, Esq. Robert Hall, Esq. Linnea Juarez, PCAM, CCAM Geri Kennedy, CCAM David Kuivanen, AIA Karl Lofthouse Kerry Mazzoni Ann Rankin, Esq. Rob Rosenberg, CCAM Kurtis Shenefield, PCAM, CCAM Dennis Socher Paul Terry, Esq. Wanden Treanor, Esq. Stephen Weil, Esq. Glenn Youngling, Esq.

SF Luncheon Speakers John Allanson Tyler P. Berding, Esq. Ronald Block, PhD. Doug Christison, PCAM, CCAM Karen Conlon, CCAM Rolf Crocker, CCAM Ross Feinberg, Esq. David Feingold, Esq. Tom Fier, Esq. Kevin Frederick, Esq. John Garvic, Esq.

Beth Grimm, Esq. Brian Hebert, Esq. Roy Helsing Julia Lave Johnston Garth Leone Nico March Larry Russell, Esq. Steve Saarman Nathaniel Sterling, Esq. Debra Warren, PCAM, CCAM Steven Weil, Esq. Mark Wleklinski, Esq. Glenn Youngling, Esq.

Recent ECHO Journal Contributing Authors May 2008 Meghan Connolly Haupt Beth A. Grimm, Esq Garth Leone Lise K. Ström, Esq. June 2008 Tyler P. Berding, Esq. Tina Wang, Esq. David West Mary L. Wulf July 2008 Doug Christison, PCAM, CCAM Mary Filson, Esq. Monty Hollingsworth Brian Seifert August 2008 Tyler P. Berding, Esq. Molly A. Foley-Healy, Esq. Geri Kennedy, CCAM Hermann Novak Dick Tippett

ECHO

What is ECHO? ECHO (Executive Council of Homeowners) is a California non-profit corporation dedicated to assisting community associations. ECHO is an owners’ organization. Founded in San Jose in 1972 with a nucleus of five owner associations, ECHO membership is now 1,525 association members representing over 150,000 homes and 325 business and professional members.

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. If your company wants to reach decision makers at over 1,525 homeowner associations, you can become an associate member and join 325 other firms serving this important membership.

What are the Benefits of ECHO Membership? • Subscription to monthly magazine for every board member • Yearly copy of the Association Statute Book for every board member • Frequent educational seminars • Special prices for CID publications • Legislative advocacy in Sacramento

ECHO Membership Dues HOA Size 2 to 25 units 26 to 50 units 51 to 100 units 101 to 150 units 151 to 200 units 201 or more units Business/Professional

Rate $120 $165 $240 $315 $390 $495 $425

ECHO Journal Subscription Rates Members $50 Non-members/Homeowners $75 $125 Businesses & Professionals

How Do You Join ECHO? Over 1,800 members benefit each year from their membership in ECHO. Find out what they’ve known for years by joining ECHO today. To apply for membership, call ECHO at 408-297-3246 or visit the ECHO web site (echo-ca.org) to obtain an application form and for more information.


The Controlling Director Continued from page 33

Thus, the director could be on hands and knees scrubbing the lobby floor or hammering away at a loose fence board. There would still be no workerâ&#x20AC;&#x2122;s compensation coverage to protect him in the event of an injury. Even worse, a resident could slip on the wet floor, and the association would be liable for the injury. From the legal perspective, a controlling director often wants to micromanage every decision, every action of his colleagues on the board and of the manager. Rather than respecting the expertise and knowledge of the manager, he insists that he knows more about everything and demands that things get done his way. He micromanages every decision and action of the manager and the onsite staff, interfering with the managerâ&#x20AC;&#x2122;s

A controlling director often wants to micromanage every decision. contractual and fiduciary obligations and creating an environment of suspicion, fear, discontent and apathy. Homeowners, contractors, suppliers, the management company or even other board members could sue him for improper employment practices, inappropriate directions and failing to act in the best interests of the community. How does one handle the controlling directors of the world? The other board members need to understand the legal and financial ramifications of allowing this type of behavior to start and continue. The manager should address the facts and the issues, focusing on the harmful effect on the community

Continued on page 40 ECHO Journal | September 2008

39


The Controlling Director Continued from page 39

and the board if the controlling directorâ&#x20AC;&#x2122;s unreasonable demands are allowed. Because this is certainly a sensitive issue, an executive session would be the appropriate venue for conversations with the controlling director regarding his behavior. After all, that director generally believes that he is acting in the best interests of the community; thus his fellow board members need to be cognizant of his mindset and address him with respect and appreciation for his sincere, albeit misguided, efforts.

Controlling board members may not realize the detrimental impact they have on their community... If the controlling director does not heed the entreaties from his colleagues and the manager to reform, the other board members may want to ask for his resignation. If the director refuses and continues to behave inappropriately, the recourse of last resort is to call for a special meeting for the purpose of removing the director from the board. Controlling board members may not realize the detrimental impact they have on their community, but their actions can result in litigation, a dysfunctional board, and the owners ready to revolt. Understanding the unique role and responsibilities of community association board members is absolutely essential to ensuring the successful operations of the association.

Linda Alexander is an account executive at Certified Management, Inc., in Oahu, HI. This article is reprinted from Association Times, a web resource for community associations sponsored by Associa Management. 40

September 2008 | ECHO Journal


ECHO Marketplace

Advertiser Index

The place to find business and professionals for your association Affirmative Management . . . . . . . . . .27 Alpha Restoration and Waterproofing .8 American Asphalt . . . . . . . . . . . . . . .27 American Management Services . . . . .9 Angius & Terry . . . . . . . . . . . . . . . . . . .3 Applied Reserve Analysis . . . . . . . . . .33 A.S.A.P. Collection Services . . . . . . . .16 Association Reserves . . . . . . . . . . . . .41

Your Ad Seen Here You read this, didn’t you? Thousands of officers and directors of homeowner association boards also read the ads each month in the ECHO Marketplace.

Advertise your business to thousands of homeowner association directors in California in the pages of the ECHO Journal.

Still the Nation’s Leading Provider of Reserve Studies “I’ve been in this industry for 25+ years and I choose AR year after year because they’re professional, enjoyable to work with, and the reports are accurate and easily understandable for me and my boards.” —Ms. Kathy, Portfolio Property Manager, Salinas,

www.reservestudy.com

Bank of Alameda . . . . . . . . . . . . . . . .33 Bayridge Group . . . . . . . . . . . . . . . . .18 Berding & Weil . . . . . . . . . . . . . . . . . .44 Collins Management . . . . . . . . . . . . .32 Community Association Banc . . . . . . .28 Community Management Services . . .28 Compass Management . . . . . . . . . . .33 Cool Pool Service . . . . . . . . . . . . . . . .28 Cornerstone Community Mgmnt . . . . .8 County Bank . . . . . . . . . . . . . . . . . . . .2 Discovery Play Systems . . . . . . . . . . . .22 Draeger . . . . . . . . . . . . . . . . . . . . . . .11 Ekim Painting . . . . . . . . . . . . . . . . . . .30 ERTECH . . . . . . . . . . . . . . . . . . . . . . .30 First Bank Association Bank Services . .40 Flores Painting . . . . . . . . . . . . . . . . . .31 Helsing Group . . . . . . . . . . . . . . . . . .18 Hill & Company. . . . . . . . . . . . . . . . . .19 Jeff Atkinson Construction . . . . . . . . .39 Louis & Riparetti . . . . . . . . . . . . . . . . .21 M&C Association Services . . . . . . . . .31 M. L. Nielsen Construction . . . . . . . . .40 Massingham and Associates . . . . . . .32 Pelican Management Group . . . . . . .41 PML Management Corp. . . . . . . . . . .11 Pollard Unlimited . . . . . . . . . . . . . . . .17 Pratt & Associates . . . . . . . . . . . . . . .18 R. E. Broocker Co. . . . . . . . . . . . . . . .17 Rebello’s Towing Service . . . . . . . . . .12 REMI Company . . . . . . . . . . . . . . . . .39 Saarman Construction . . . . . . . . . . . .16 Statcomm . . . . . . . . . . . . . . . . . . . . .17 Steve Tingley Painting . . . . . . . . . . . .37 Steve’s Painting Services . . . . . . . . . . . .9 Union Bank . . . . . . . . . . . . . . . . . . . .37

ECHO Journal | September 2008

41


Mastering the Board Game Defining Board Roles, Relationships and Leadership Program Agenda 8:15 a.m. Registration and Continental Breakfast 8:45 a.m. Welcome and Introductions 9:00 a.m. Exploring the Board’s Role and Legal Duties

October 25, 2008 8:15 a.m. –4:30 p.m.

Marriott Hotel, San Ramon Contra Costa Ballroom Presenter: Bill Charney, CEO, Charney Associates

10:15 a.m. Break 10:30 a.m. Ends vs. Means—Controlling Activities and Results 12:00 noon Lunch 1:00 p.m. Policy Development; Monitoring Staff Performance; Making Committees Effective 2:30 p.m. Break

Major Program Sponsors: Christison Company CABanc Berding & Weil Registration $75 Attendance limited to 75 registrants

2:45 p.m. Agendas; Performance Monitoring 4:00 p.m. Special Situations; Final Questions 4:30 p.m. Adjourn

Yes, reserve ___ spaces for Mastering the Board Game. Amount enclosed: $__________ (attach additional names) Name: ______________________________________________________ HOA or Firm: ________________________________________________ Address: ____________________________________________________ City: __________________________ State: _____ Zip: ____________ Phone: ______________________________________________________ Visa/Mastercard No. _____________________ Exp. Date: ________ Signature: ___________________________________________________ Orders will not be processed without payment in full. Fees for cancelled registrations will not be refunded. Return with payment to: ECHO, 1602 The Alameda, STE 101, San Jose, CA 95126 Telephone: 408-297-3246; Fax: 408-297-3517


Central Coast Fall Seminar Saturday, September 20 Donâ&#x20AC;&#x2122;t Leave It To Fate In 2008! Program Agenda 8:00 a.m. Registration and Continental Breakfast 8:45

Welcome Oliver Burford

9:00

Legislative and Case Law Update David Feingold, Esq.

9:45

Funding: Keep it Flowing Glenn Youngling, Esq.

10:30

Break

10:50

Dealing With Difficult Residents Beth Grimm, Esq.

11:35

Trends, Tricks, and Tips All Speakers

12:20

Questions and Answers

12:40

Ask the Attorneys

1:00

Adjourn

Yes, reserve _____ spaces for the Central Coast Seminar. Amount enclosed: $__________ (attach additional names) Name: ______________________________________________________ HOA or Firm: ________________________________________________ Address: ____________________________________________________ City: __________________________ State: _____ Zip: ____________ Phone: ______________________________________________________ Visa/Mastercard No. _____________________ Exp. Date: ________ Signature: ___________________________________________________ Orders will not be processed without payment in full. Fees for cancelled registrations will not be refunded. Return with payment to: ECHO, 1602 The Alameda, STE 101, San Jose, CA 95126 Telephone: 408-297-3246; Fax: 408-297-3517

Central Coast Fall Seminar Saturday, September 20 8:00 a.m. to 1:00 p.m. Best Western Seacliff Inn, Aptos

Registration Cost $40


Condominium Conversions Did You Get What You Paid For?

Condo conversions are not new condominiums. They are older rental apartments that were converted to condos. So, what’s wrong with that? Nothing, if the financial plan that came with your condo is up to the task of maintaining a building with 20-30 years of deferred maintenance. How do you know? You probably don’t unless someone

has taken a close look at the homeowner association’s budget and compared it to the actual condition of the buildings. The fact is, very few condominium conversions were sold with repair budgets that are adequate to meet the needs of the project. What does this mean to you? If the budget is inadequate, it will mean either increased homeowner assessments or a gradually deterio-

rating condominium project. Or both. In either case, you didn’t get what you paid for. If you’d like to know the truth now about what you bought, call us. If you want to wait and see what happens, ok, but either way, we’ll be here when you need us. Berding | Weil, LLP 3240 Stone Valley Road West Alamo, California 94507 925-838-2090 www.berding-weil.com

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