Journal_12_10

October 2012

A Journal for California Community Association Leaders

echo-ca.org

Shifting the Paradigm

ALSO INSIDE THIS ISSUE:

• Basis of Accounting • Shopping for a Loan • Permits? What for?

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

PRSRT STD U.S. Postage PAID MOdern Litho 210

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 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 2012 Executive Council of Homeowners, Inc. All rights reserved.

Reproduction, except by written permission of ECHO, is prohibited.

Contents 8

14

20

26

14

Is Your Association Shopping for a Loan?

When an association determines that a loan will be necessary to help fund a project, often the first question asked is “what is the interest rate.” Although a good question, the interest rate is only a small part of the loan options that should be explored in order to compare bank to bank which will be the best terms for your association’s circumstances.

Office Hours: Monday–Friday 9:00 a.m. to 5:00 p.m.

20

Permits? What For? Permits are not optional and there is no “go free card” just because your community is strapped for cash. Avoid the temptation to minimize the importance of complying with the law. The Board is responsible for a corporation and there are consequences for poor decisions.

Vice President Karl Lofthouse Treasurer Diane Rossi Secretary Jennifer Allivato Directors Paul Atkins John Garvic Robert Rosenberg Brian Seifert Steven Weil

Basis of Accounting Which basis of accounting should be used when preparing interim (monthly, quarterly and annual) financial statements for your homeowners’ association? This article describes three bases of accounting, highlights their differences, and discusses their effect on financial reporting.

ECHO

Board of Directors and Officers President David Hughes

Shifting the Paradigm Too often the mandatory and rigorous association disclosure obligations are seen as a burden, and a negative factor affecting values. But what if they were viewed from a positive perspective?

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

1602 The Alameda, Suite 101 San Jose, CA 95126 408-297-3246 Fax: 408-297-3517 www.echo-ca.org info@echo-ca.org

8

26

Jerry L. Bowles David Levy Kurtis Shenefiel Wanden Treanor

Executive Director Brian Kidney Director of Marketing & Membership Jennifer Allivato

Departments 4

Director of Communications Tyler Coffin Legislative Consultant Government Strategies, Inc.

News From ECHO

31 Events Calendar 32 Directory Updates 33 Legislation at a Glimpse

Design and Production George O’Hanlon

34 ECHO Bookstore

ECHO Mission Statement

37 ECHO Marketplace

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.

37 Advertiser Index

36 ECHO Volunteers

On the Cover —page 8 ECHO Journal | October 2012

3

News from ECHO Fall is officially here!

Many of you are knee-deep in budget meetings, racing the weather with lastminute maintenance projects, and preparing for your own busy holiday seasons. In fact, the more I speak with our members, the more I wonder how you find time for work, for your families, and for your HOA communities.

At ECHO, we’ve really taken that struggle to heart: how does the modern board member find time to stay educated about association law and important developments? Your ECHO membership should simplify that task, and we are hard at work on dozens of new membership services that will make your jobs easier. In 2013, our goal is to provide an ECHO membership customized for you: information tailored for all of our members, from young professionals with families to retired empty nesters.

Beginning in January we will launch a number of new initiatives aimed at improving your membership experience, including a significant increase in regional seminars throughout Northern California, and a new website. The website will offer a variety of new tools: • Online access to the ECHO Journal.

• On-demand video education.

• Answers to hundreds of common HOA questions.

• Access to critical legislative and industry developments.

• The ability to communicate with other ECHO members.

I am excited about all of our new services, but particularly about the new online social tools that will allow you to communicate with other members: to share information, stories, and recommendations. We want to build a strong ECHO community that extends beyond our frequent seminars, to all of our members.

Our commitment to enhancing your ECHO membership experience begins with our website.

Please take the first step in customizing your ECHO membership by helping us set up your new online account: provide your email address on the short form at http://www.echo-ca.org/email.

I look forward to seeing many of you at our Peninsula Fall Seminar on October 20th. Take care and Happy Halloween to you and yours.

Best,

Jennifer Allivato Director of Marketing and Membership Services

4

October 2012 | ECHO Journal

For Members Only Set Up Your Account.

ECHO is relaunching in 2013. We are hard at work on dozens of new services for board members, homeowners, and professional members.

How do I get access?

We’ll set everything up, but we need a little information from you. Your email address is the foundation of your new account. Go to the URL below to submit a quick form. We’ll take it from there. http://www.echo-ca.org/email Who gets an account?

Everyone! Are you a board member? A homeowner in a member HOA? A subscriber? A professional member? You get an account.

We are extending our online membership benefits to everyone in our member HOAs: board members and owners.

What’s in the works?

Here are just a few of the tools that we’re building: • Online access to ECHO Journals.

• Exhaustive HOA reference guide.

• Video instruction.

• Annotated HOA statute guide.

• Extensive legislative guide.

• Inter-association communication.

• Improved access to vendor listings.

Look for more announcements in the November and December Journals. We can’t wait to show you what’s coming!

Vote.

ECHO is a membership organization, and YOU are our voting members. We need your participation to elect the ECHO board of directors.

The Annual Meeting of Members is scheduled for November 15, 2012, and will be held at the ECHO office: 1602 The Alameda, Suite 101, San Jose, CA, 95126. The meeting will take place at 9:30 a.m. Please visit the website below to review meeting materials, board member biographies, and to cast your vote.

Who can vote?

Homeowner associations that are members of ECHO may vote. Each association has a delegate authorized to vote on its behalf. If your association has not specified a delegate, then the association’s president votes.

How do I vote?

The authorized delegate may cast their vote online, or by mailing or faxing their proxy to ECHO. Visit the URL below to vote via the online form, or download and print the proxy. http://www.echo-ca.org/vote

ECHO Journal | October 2012

5

PENINSULA

FALL SEMINAR Seminar Agenda

Peninsula Fall Seminar October 20, 2012 Crowne Plaza Foster City 1221 Chess Drive, Foster City Yes, reserve _____ spaces for the ECHO Peninsula Fall Seminar.

Price: $59 Members $69 Non-Members

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

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

8

October 2012 | ECHO Journal

By David F. Feingold Esq. and Matthew A. Haulk, Esq.

Shifting the Paradigm Turning Disclosure Obligations into Opportunity e are all far too familiar with the implosion of the subprime housing bubble in late 2008 and the resulting free fall in California home values, and in condominium values in particular. For the past four years volunteer directors and com-

W

munity managers have been struggling with an epidemic of delinquencies, banks refusing to foreclose nonperforming loans, and the difficulty faced in raising assessments. Essential services have often been a higher priority than common

ECHO Journal | October 2012

9

area repairs. In the midst of these significant problems it is no wonder that directors have struggled with fulfilling the most essential duty of all—the duty, spelled out in one way or the other, at the beginning of virtually every set of CC&Rs. It is the duty to “enhance and maintain the value” of the property.

While the market is far from recovered, there are encouraging signs as the total number of sales rise and average sales prices increase. How can your community ride the wave of a positive turn in market conditions in light of these issues, and especially the need to make full disclosures?

One way is to change the way you think about disclosures. It does not cost anything to change your point of view. Too often the mandatory and rigorous association disclosure obligations are seen as a burden, and a negative factor affecting values. But what if they were viewed from a positive perspective?

Sure there are major repairs to be made and reserves are low, but what about all the positive energy that has gone into identifying exactly what the issues are, selecting priorities, determining what can be deferred, obtaining competitive bids, and garnering the support of a tight community in tackling the issues rather than ignoring them?

Disclosures that ensure compliance with the law while putting bad news in context, and which highlight the positive aspects of the community, are in many ways the most important thing a Board can do in these difficult times.

Luckily, there are some simple guidelines to follow. This article will first provide an overview of the two-step process for association disclosures. Second, it will present a four step process that can be used to create positive disclosures.

CID Disclosures: A Two Step Process California Civil Code §1368 requires that the seller of an interest in a common interest development provide to a potential buyer specified documents and information about the association. The association, of course, must provide those documents and information to the selling owner, so they can be passed along to the potential buyer. In order to understand the statute, it helps to know a little about its history.

Civil Code §1368 was originally enacted in 1983 as an amendment to another bill, which addressed the fact that buyers of condominiums were often in the dark about what they had bought. Sponsored by the California Association of Realtors® (CAR), the basis of 10

October 2012 | ECHO Journal

the bill was the Raven’s Cove opinion, which held that directors were fiduciaries and, among other things, obligated to maintain proper reserves. In support of the bill, CAR maintained that most associations had “ignored the responsibility to maintain adequate monetary reserves.” The intent of the bill was to “establish uniform budgeting disclosure procedures for all homeowners associations.” Almost thirty years and countless amendments to the Davis Stirling Act later, associations in California are now bound by a plethora of notice, reporting, record keeping, and disclosure obligations that must be rigorously followed.

The First Step The first step is to pay close attention to the annual and periodic reports and summaries required to be provided to members.

These required disclosures are simply making sure that the members know how the association is doing, physically and fiscally.

Among all these required disclosures, the most important in terms of non-disclosure claims to be mindful of is Civil Code §1365 (a), which refers to the “Pro Forma Operating Budget.” It should be called the “Pro Forma Budget Package.” You can avoid a great deal of non-compliance by simply adopting this phrase; it is a package, not a sheet of paper. In addition to the budget, the Pro Forma Budget Package must contain specific information about the Association’s Common Area components and reserve funds. Along with a summary based on the most recent reserve study, and a percentfunded calculation disclosure summary, Civil Code §1365(a)(3) requires the Association to provide “a statement as to whether the Board of Directors of the Association has determined or anticipates that the levy of one or more special assessments will be required to repair, replace or restore any major component to provide adequate reserves therefore...”

This bears repeating. The Board must make a statement as to whether it “anticipates” the need to levy a special assessment in the future. Opinions can certainly differ on what should have been “anticipated,” and this opens the door for potential claims. For older Associations, the statement should almost always be something along the lines of “it depends.”

If the Association has not complied with Civil Code §1365, there is little hope of complying with the second step of the disclosure process. Also, remember that a related bene-

fit of compliance with Civil Code §1365 is that the Board may raise assessments, if necessary, up to the limits set by Civil Code §1366 without member approval. This right is lost if the Board does not provide the members with a Pro Forma Budget Package that complies with Civil Code §1365(a).

The Second Step How does this important information about the Association then find its way to the prospective buyer? This occurs through the second step, which is known as the Civil Code §1368 disclosure, or the “Request for Documents and Information.” The specified information and documents must be delivered to the selling owner within 10 days of the mailing or delivery of the owner’s request.

As of January 1, 2012, the legislature did us all a favor by requiring that the cost to obtain copies of these numerous documents be disclosed in advance. This necessitated the development of a mandatory “billing disclosure” form, which can be found in Civil Code Section 1368.2. The form lists all of the required Civil Code Section 1368 disclosure documents. Associations and managers may disclose electronically and may use a vendor to provide this service.

Given the importance of disclosures, an association should not address each purchase and sale on an ad hoc basis, especially if it wants to create legally compliant and positive disclosures. The four step process below suggests a method to handle disclosures methodically and positively.

The Four Step Process Any approach which ensures full and complete disclosure, and sees disclosures as a positive opportunity, is a good one. If you have such a process in place, stick with it.

In general, it should be the Board of Directors, not the community manager, ultimately deciding what is in the 1368 disclosure package. A community manager who handles 1368 disclosures, without routinely consulting with the Board, risks being accused of exceeding the scope of his or her authority, or missing something important.

By taking control of disclosures the Board can both ensure legal compliance and have a role in the creation of a positive disclosure.

The four step approach we like includes (1) adoption of a written resolution of the Board, (2) the use of only an authorized form, (3) a flexible disclosure summary and/or compilation of relevant and updated ECHO Journal | October 2012

11

jects, management and the Board may be involved in evaluating the nature and scope of premature component failures, and the adequacy of the reserve accounts. This process may take a year, maybe two, maybe more. The data and information received may change rapidly. In these circumstances, where the Board “anticipates” that an increase in assessments may be necessary in the future, we recommend developing either a compilation of relevant documents or a disclosure summary. The compilation could include copies of relevant owner updates, perhaps preliminary reports from consultants and any other relevant information. The benefit of a compilation of documents is that it can be quickly and easily added to as new information is received. A summary which is updated as necessary may also serve this purpose. That summary or compilation can then be added to the electronic disclosures, or provided in hard copy, with the response to the Civil Code §1368 Request for Documents and Information.

4. Agendize Disclosure. We also recommend that at each regular Board meeting, the Board add to the regular agenda, under

documents, and (4) adding disclosure as an agenda item.

1. Adopt a Written Resolution. The first step is for the Board to adopt a written resolution which sets forth how and in what form the Board or its managing agent will respond to a seller’s Civil Code §1368 Request for Documents and Information. Among other things, the resolution might address who is authorized to communicate with whom. The law only requires that the manager or board communicate with the seller or listing agent, and not the buyer or buyer’s agent. This approach is set forth in Civil Code §1368 and was upheld in Kovich v. Paseo Del Mar HOA (1996) 41 Cal.App.4th 864. However, should this be loosened up? When would it be ok for the manager and/or directors to communicate directly with prospective purchasers?

The prospective buyer may soon be your neighbor and fellow board member; shouldn’t they be made to feel welcome? Should a potential buyer or their agent sign a disclaimer and waiver before having conversations with directors or managers? Values in the community are not enhanced by secrecy, yet there are risks involved in exceeding the 12

October 2012 | ECHO Journal

statutory minimums. The key is to consider how these communications will be handled and create a policy to handle them.

2. Use Only an Authorized Form. Pursuant to the instructions in the Resolution, the managing agent or directors handling these requests should communicate with the seller or the seller’s agent, and potential buyers if authorized, and most importantly respond to requests with an approved form. Be very cautious, as forms received from real estate agents may ask the Board to make specific representations that go too far, and are beyond the Section 1368 requirements. The approved form can be custom or a commonly accepted pre-printed form. Check with counsel if you have any questions about the form used.

3. Develop a Disclosure Summary or Compilation of Documents. If the Association is like many mature pro-

“Old Business,” the line item “Disclosure.” At each meeting consider whether there is any new information that should be added to the package, or the summary. Also consider whether any update can be provided to continue to provide a “positive disclosure” that will enhance, not detract from, value and desirability of the community.

COM PA S S

Guiding your HOA in the right direction

MANAGEMENT GROUP

Summary The Board must take an active role in disclosing important information to the owners at large, and then to selling members. This is especially important as communities emerge from the subprime market debacle. Shifting your point of view so that you think of disclosure obligations as a positive opportunity to be seized, rather than a negative burden to be ignored or minimized, is one of the least expensive and most important tools you can use to maintain and enhance property values.

With our growing team of experienced HOA management professionals, Compass has the resources and depth of understanding to resolve the challenges facing your association. We deliver creative solutions, clarity of vision, customized technologies and superior management.

Discover why our clients trust Compass to provide the management guidance and direction for their communities.

David F. Feingold and Matthew A. Haulk are members of the San Rafael law firm of Ragghianti Freitas LLP, and practice community association law in the San Francisco Bay Area.

www.GoCompass.com 408.226.3300 | 510.226.0300 | 650.563.9900 | 831.583.9900

ASSOCIATION ATION B BANK ANK NK SERVICES SERVICES UÊ UÊ"«iÀ>Ì }Ê> `Ê,iÃiÀÛiÊ iV } Ê"«iÀ>Ì }Ê> `Ê,iÃiÀÛiÊ iV } UUÊ ÃÃ V >Ì Ê > Ã Ê ÃÃ V >Ì Ê > Ã UUÊ

Ê* >Vi i ÌÊ-iÀÛ Vià Ê

Ê* >Vi i ÌÊ-iÀÛ Vià UUÊ Õà iÃÃÊ" iÊ > } Ê Õà iÃÃÊ" iÊ > } UUÊ,i ÌiÊ i« Ã Ì Ê,i ÌiÊ i« Ã Ì UUÊ ÕÌ >Ìi`Ê V L ÝÊ-iÀÛ ViÃ Ê ÕÌ >Ìi`Ê V L ÝÊ-iÀÛ Vià UUÊ ÕÌ >Ì VÊ ÃÃiÃà i ÌÊ*>Þ i ÌÃÊ Ê ÕÌ >Ì VÊ ÃÃiÃà i ÌÊ*>Þ i ÌÃÊ UUÊ- « wi`Ê Ãà V >Ì Ê- } >ÌÕÀiÊ >À`à Ê- « wi`Ê Ãà V >Ì Ê- } >ÌÕÀiÊ >À`Ã

Specialized S pecializzed banking for community associationss & management professionals prrofessionals ofessio ofessionals

V >i Ê i i`Þ]Ê*Àià `i Ì V >i Ê i i`Þ]Ê*Àià `i Ì >Ì iÀ iÊ9 Õ }]Ê-À°Ê6 ViÊ*Àià `i Ì

>Ì iÀ iÊ9 Õ }]Ê-À°Ê6 ViÊ*Àià `i Ì ­­nää®ÊÓää ää£Î nää®ÊÓää ää£Î

>À Ê vÌ ÕÃi]Ê-À°Ê6 ViÊ*Àià `i Ì >À Ê vÌ ÕÃi]Ê-À°Ê6 ViÊ*Àià `i Ì

iÀ Ê i i`Þ]Ê6 ViÊ*Àià `i Ì iÀ Ê i i`Þ]Ê6 ViÊ*Àià `i Ì ­­nÈÈ®Ê{ Î näÓÓ nÈÈ®Ê{ Î näÓÓ

ÃÃ V >Ì > -iÀÛ ViÃJvL °V ÃÃ V >Ì > -iÀÛ ViÃJvL °V ÜÜÜ° ÀÃÌ > " °V ÜÜÜ° ÀÃÌ > " °V ECHO Journal | October 2012

13

By James H. Ernst, CPA, MS-Tax, CCAM

Basis of Accounting Which One Should You Use? W

hich basis of accounting should be used when preparing interim (monthly, quarterly and annual) financial statements for your homeowners’ association? First, let’s define the term “Basis of Accounting.” “Basis of Accounting” simply describes the timing of the recording of various financial transactions (when revenues and expenses are recognized, and assets and liabilities are reported).

We will describe these three bases of accounting, highlight their differences, and discuss their effect on financial reporting. We will examine various sections in the California Civil Code (Davis-Stirling Common Interest Development Act), and address the year-end review or audit report prepared by your independent CPA, which is issued using the Accrual Basis.

Three Different Bases of Accounting—Definitions For the homeowners’ association industry in California, you can elect to use any one of three different bases of accounting when preparing your interim financial statements (Accrual Basis of Accounting, Cash Basis of Accounting or Modified Accrual Basis of Accounting).

Accrual Basis of Accounting The Accrual Basis, which is in conformity with Generally Accepted Accounting Principles (GAAP), means revenue is recorded when earned and expenses are recorded when incurred, regardless of when cash is exchanged.

14

October 2012 | ECHO Journal

ECHO Journal | October 2012

15

• Detailed Financial Reporting • Lender Servicing and Collection • Personal Obligation Program

• Short Sale Negotiations • Bankruptcy Monitoring • Online Case Set Up

AND MORE . . .

Phone (408) 363-9600 • Fax (408) 225-8864 • Toll Free (877) 363-9600 • ContactUs@asaspcollect.com

Oh the Things We See!

Revenues—All revenues of the association are reported when earned, not when received.

For Example: Members’ Assessments are reported as revenues when they are charged to the members (i.e., earned by the association, usually on the first day of the month).

At the same time, an asset titled “Assessments Receivable” is reported on the Balance Sheet. As payments are received, they increase the association’s Cash balance while either reducing Assessments Receivable or increasing Prepaid Assessments.

Expenses—All expenses of the association are reported when incurred, not when paid.

For Example: The costs of various services that are provided to the association are reported as expenses when these services have actually been provided.

At the same time, a liability titled “Accounts Payable” is reported on the Balance Sheet. As these items are paid, the association’s Cash balance and Accounts Payable are reduced.

Cash Basis of Accounting The Cash Basis, which is not in conformity with GAAP, means income and expenses are recorded when cash is exchanged.

Revenues—All revenues of the association are reported when received, not when earned.

For Example: Members’ Assessments are reported as revenues only when payments are actually received.

At the same time Cash is increased on the Balance Sheet. There are no entries to Assessments Receivable or Prepaid Assessments because neither of these accounts exist on the Balance Sheet when using the Cash Basis.

Expenses—All expenses of the association are reported when paid, not when incurred.

For Example: The costs of these same services are reported as expenses only when they are actually paid (generally, when a check is issued).

Only the Cash balance is decreased, there are no entries to Accounts Payable on the Balance Sheet because this account is used only when recording expenses on the Accrual Basis.

Modified Accrual Basis of Accounting The Modified Accrual Basis (sometimes called the Modified Cash Basis) is a combination of the Accrual and Cash Basis.

Revenues—All revenues of the association are reported when earned, not when

16

October 2012 | ECHO Journal

Mark your calendar!

Saturday, October 20th Walnut creek, ca

2012

.com Serving all of California

1.888.VARSITY halloweenbash2012.org

AdvocureNF2

advancing research for Neurofibromatosis 2

License #809250

received—the timing is the same as for the Accrual Basis.

Expenses—All expenses of the association are reported when paid, not when incurred —the timing is the same as for the Cash Basis.

Although the Modified Accrual Basis is not in conformity with GAAP, which requires the Accrual Basis, it is considered to be an acceptable basis of accounting for interim reporting purposes for homeowners associations because the use of the Modified Accrual Basis has been codified in sub-section (a)(1)(C)(iv) of Section 1365.2 of the Civil Code, “Right to Inspect and Copy Association Records.”

Effect on Interim Financial Statements The effect on the interim financial statements is as follows: Accrual Basis of Accounting When financial statements are prepared on the Accrual Basis, the recording of the various daily, weekly and monthly transactions (i.e., revenues when earned and expenses when incurred), will result in the automatic generation of three different, but very impor-

tant, detailed reports (Aged Assessments Receivable, Prepaid Assessments and Accounts Payable).

Aged Assessments Receivable—A detailed report listing all owners who have not paid their assessments or other charges in full at the end of the accounting period. This “Aged Assessments Receivable Report” shows who owes money to the association (member’s name), how much they owe (unpaid balance), how long it has been outstanding (current, over 30, over 60 and over 90 days), and total balance due to the association. The total balance due must agree to the amount reported as an asset (Assessments Receivable) on the Balance Sheet, at least until the assessment has been paid or written off as uncollectible.

Prepaid Assessments—A detailed report listing all owners who have paid their assessments in advance of their due date (e.g., January’s assessments are paid in December), how much they prepaid, and total prepaid balance. The total prepaid balance must agree to the amount reported as a liability (Prepaid Assessments) on the Balance Sheet,

at least until these assessments have been earned.

Accounts Payable—A detailed report listing all unpaid invoices as of the end of the accounting period. This “Accounts Payable Report” must agree to the amount reported as a liability (Accounts Payable) on the Balance Sheet, at least until these invoices are paid.

Cash Basis of Accounting If you elect the Cash Basis, the amounts for Assessments Receivable, Prepaid Assessments, and Accounts Payable will not be reported on the Balance Sheet. Although reports for Assessments Receivable, Prepaid Assessments, and Accounts Payable could be prepared, you could not verify their accuracy by comparing the totals in these reports to the amounts reported on the Balance Sheet because there are no amounts reported on the Balance Sheet for these accounts when using the Cash Basis.

Modified Accrual Basis of Accounting If you elect the Modified Accrual Basis, amounts for Assessments Receivable and Prepaid Assessments will agree to the amounts on the Balance Sheet, the same as ECHO Journal | October 2012

17

the Accrual Basis. However, the amount of the unpaid invoices in the Accounts Payable Report, if provided, would not be on the Balance Sheet because these expenses are recorded on the Cash Basis, not the Accrual Basis.

California Civil Code There are several sections of the California Civil Code which require or suggest that interim financial statements be prepared on the Accrual Basis.

Civil Code § 1365(a)(1)— Financial Documents Under this section, the association shall prepare a pro forma operating budget that includes “…estimated revenues and expenses on an accrual basis.”

If the annual operating budget is required to be prepared on the Accrual Basis, then the Income Statement should be prepared on the same basis. Remember, the Income Statement compares the actual revenues and expenses that are reported for the period with the estimated revenues and expenses that were reflected in the budget for the same period.

18

October 2012 | ECHO Journal

Civil Code § 1365.2(a)(1)(C)(iv)—Right to Inspect and Copy Association Records Whenever a member requests copies of the financial records of the association, this section states these records “…shall be prepared in accordance with an accrual or modified accrual basis of accounting.”

Civil Code § 1365.5(a)(3)— Board of Directors; Duties; Reserve Accounts This section states the board shall “review, on at least a quarterly basis, the current year’s actual…revenues and expenses compared to the current year’s budget.”

Although this sub-section addresses “reserves”, the implication in the other subsections is that the board is required to review the financial information for both operating and reserve activities. Given that the budget is supposed to be prepared on the Accrual Basis, then it stands to reason that the financial statements should also be prepared on the Accrual Basis.

We Recommend the Accrual Basis of Accounting We recommend you prepare your interim financial statements on the Accrual Basis of Accounting simply because we believe it pro-

vides the most meaningful and comprehensive financial reporting for your homeowners’ association.

Accrual Basis of Accounting (Recommended) Under the Accrual Basis all financial activities of your association will be reported on the financial statements. All revenues that have been earned and all expenses that have been incurred will be reflected in the Income Statement; therefore, amounts will be comparable to the budget. Further, the Balance Sheet will include Assessments Receivable, Prepaid Assessments and Accounts Payable, and totals for each will agree to their respective detailed reports.

Accrual Basis financial statements will be in conformity with GAAP, while meeting the requirements of the Civil Code; cash flow information is still available from bank statements and Check Registers; and the year-end review or audit report provided by your independent CPA will be presented in the same manner as your interim financial statements.

Cash Basis of Accounting (Not Recommended) Under the Cash Basis, reports can be created that are misleading to the readers of the

financial statements. This is primarily because the Income Statement may not reflect all revenues earned nor all expenses incurred during the period—amounts may not be comparable to the budget. Further, the Balance Sheet does not list Assessments Receivable, Prepaid Assessments or Accounts Payable; therefore, the financial information may not be complete.

The argument often presented in favor of the Cash Basis is that actual cash received and cash disbursed are reported on the face of Income Statement when using this basis of accounting, and many managers as well as board members want to know exactly how much cash was received and disbursed during the period.

This cash flow information can be obtained from the other financial information that accompanies, or should accompany, the financial reports. By looking at the actual bank statements at the end of each month you can see how much cash was deposited into the bank (cash received). In addition, by looking at the Check Register you can see how many checks were issued during the month (cash disbursed).

Modified Accrual Basis of Accounting (A Compromise) As a compromise, your financial statements can be prepared on the Modified Accrual Basis. In fact, a large number of associations have elected to use this basis because they recognize that revenues should be recorded when earned (accrual basis), but they believe it is easier to record expenses when paid rather than when incurred (cash basis).

However, by simply keeping your books open for up to 2 weeks after the end of the accounting period, you can record most, if not all, expenses in their proper period.

Therefore, your financial statements can be presented on the Accrual Basis without compromise.

James Ernst is a Certified Public Accountant and a member of ECHO. His CPA firm, James Ernst Accounting, has been providing accounting and tax services since 1993, and he specializes in providing professional services for the homeowners’ association industry. He can be reached at 866289-6000 or jim@ernst-cpa.com.

ECHO Journal | October 2012

19

20

October 2012 | ECHO Journal

By Geri Kennedy

Is Your Association Shopping for a Loan? hen an association determines that a loan will be necessary to help fund a project, often the first question asked is “what is the interest rate?” Although a good question, the

W

interest rate is only a small part of the loan options that should be explored in order to compare bank to bank which will be the best terms for your association’s circumstances.

Here are some additional questions that will help provide a more “apples to apples” understanding of the differences and how they may ECHO Journal | October 2012

21

Amazon customers gave it a five-star rating 2012 Condominium Bluebook A Complete Guide to Living in a Condominium Member Price: $17.00 Non-Member Price: $25.00

This well-known compact guide for the 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.

Order today from ECHO! Call 408-297-3246, fax at 408-297-3517 or email: info@echo-ca.org

Reserve Studies You Can Count On! The Helsing Group, Inc. CA Contractor’s License #672692

Request Your Proposal Online!

Helsing.com

Highly Qualified Site Inspectors RS & PRA Professional Designations Color Reports with Photos & Maintenance Suggestions Proprietary Database System for Optimal Accuracy Free Updates Later in the Fiscal Year!

1Ͳ800Ͳ443Ͳ5746 Ⴁ Ⴁ 2000 Crow Canyon Place, Suite 380 Ⴁ Ⴁ San Ramon, CA 94583 Ⴁ Ⴁ reservestudies@helsing.com

ACE Property Management, Inc.

impact the association’s financial condition over the course of the loan.

The following questions assume that the association is using a bank with experience in lending to HOA’s. These lenders generally accept the association’s assessment stream as collateral. If that is not the case, be sure to understand clearly what collateral will be used. Will other HOA funds be frozen? Will liens be filed by the bank against association common areas or individual unit owners?

1. What is the maximum number of years the bank will lend funds for your project? • Usually, the bank will not lend funds for longer than the life of the project— in other words, a paint job generally has a seven to ten-year life expectancy.

The bank may only approve a five-year term for a painting project. • The bank can generally assist the association in determining a reasonable amount of time for repayment based on the size of the association, size of the project, other projects coming up in the near future and many other factors.

2. How much are the loan fees and how are they calculated? Will there be additional charges—for legal review, project inspection, document preparation?

Lenders generally accept the association’s assessment stream as collateral. If that is not the case, be sure to understand clearly what collateral will be used by the lender.

Professional Service Delivered Personally Ć” 3rRIHVVLRQDO &RPPXQLW\ 0DQDJHPHQW VLQFH Ć” &RPSOHWH 0DQDJHPHQW )LQDQFLDO &XVWRPHr 6HUYLFH Ć” (OHFWrRQLF ZRUN RUGHr WUDFNLQJ DQG IROORZ XS Ć” WH VHUYLFH 6DQWD &ODUD 6DQ 0DWHR DQG $ODPHGD &RXQWLHV Ć” 6PDOOHr $VVRFLDWLRQV WHOFRPHG Ć” 2Q &DOO (PHUJHQF\ 6HUYLFH

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

22

October 2012 | ECHO Journal

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

4. How will the loan be funded? • Will there be a draw period? If so, how will draw requests be handled?

• It is common for an HOA loan to be set up so the association borrows what is needed to pay the vendors as the project progresses. Interest is charged monthly only on the amount borrowed during this “draw periodâ€?. A project completion, the amount borrowed becomes a term loan and principal and interest payments will begin.

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

6. Can the loan be amortized over a longer period with a balloon payment after a set amount of time? The loan would then be refinanced, or it is possible that the balance would be low enough that the association could simply pay it off. This may be the case if homeowners have paid their special assessment early.

7. Are there any prepayment penalties at any time during the course of the loan? If so, under what circumstances and how are they calculated? Prepayment penalties can quickly offset a savings in interest rates.

Community Association Loans "MM UIF SJHIU UPPMT GPS ZPVS OFYU QSPKFDU How will you fund your next community project?

Get the job done right with the Community Association Loan toolkit. You’ll get custom financing that’s perfect for your budget and your community.

Your Community Association Loan toolkit includes: t $PNQFUJUJWF JOUFSFTU SBUFT t 'MFYJCMF QBZNFOU QMBOT t *OOPWBUJWF MPBO TUSVDUVSFT t 'JYFE SBUF MPBOT t /PO SFWPMWJOH MJOFT PG DSFEJU

Get the cash you need today. +BDL 7 #SBOEU $.$" ".4 3FHJPOBM "DDPVOU &YFDVUJWF 510.921.0124 5PMM 'SFF FYU jack.brandt@mutualofomahabank.com

.FNCFS '%*$ t &RVBM )PVTJOH -FOEFS National Corporate Member of Community Associations Institute

"'/ @

ECHO Journal | October 2012

23

6 (59,1* &20081,7,(6 7+528*+287 1257+(51 &$/,)251,$ 672&.721 +4 ‡ )5(0217 6(59,1* &20081,7,(6 7+528*+287 1257+(51 &$/,)251,$ 672&.721 +4 ‡ )5(0217 PLE PLEASANTON ‡ &233(5232/,6 ‡ 02'(672 ‡ 6$17$ &/$5$ ASANTON ‡ &233(5232/,6 ‡ 02'(672 ‡ 6$17$ &/$5$

M & C Association Management Services provides community association management and developer services to Fremont, Pleasanton, Santa Clara, Stockton, Modesto, Copperopolis and the surrounding foothills.

Since 1990, our sole focus has been to deliver performance that enriches communities and enhances the lives of the people we serve. M & C is proud to be an Accredited Association Management CompanyŽ (AAMCŽ), which is the Community Associations Institute’s highest GHVLJQDWLRQ DZDUGHG WR PDQDJHPHQW ÀUPV

3 3OHDVDQWRQ ‡ )UHPRQW ‡ 6DQWD &ODUD OHDVDQWRQ ‡ )UHPRQW ‡ 6DQWD &ODUD S Stockton tockton 209.644.4900 209.644.4900 ‡ ‡ 0RGHVWR ‡ &RSSHURSROLV 0RGHVWR ‡ &RSSHURSROLV For management proposal information, please visit www w.mccommunities.com or email inffo@mccommunities.com

Component Reserve Analysis and Construction Project Management

Fire Alarm Systems Fire Sprinkler Systems Testing, Service, Design & Installation

Tele-Entry & Access Control Emergency Exit Lighting Automated Gates Fire-Rated & Rollup Doors For Information please call: 650 988-9508 or 888 988-9508 or e-mail info@statcomm.com Lic # 675521 Underwriters Lab #UUFX.S8915 Diamond Certified

24

October 2012 | ECHO Journal

Pollard Unlimited, Inc. Professional Service – Competitively Priced

Roger Pollard, President

Office: (209) 879-9113 FAX: (209) 879-9252 Email: pollardunlimited@comcast.net

8. Can the association make additional payments to principal without penalty and will the loan be reamortized to reflect the lower balance? This is important if the loan payments are funded through a special assessment. It is common for unit owners to pay their special assessments early, often because they have sold or refinanced their unit. Those funds received by the association should be applied toward the principal loan balance. • The cash flow stream from the special assessment will be reduced through prepayments. Accordingly, the loan should be reamortized after the principal reductions from the prepayments in order to keep the special assessment cash flow stream and loan payment amounts in sync.

9. Is there a requirement to keep the association’s funds in the lending bank? Are there ongoing requirements during the course of the loan? Annual financials, budget, and evidence of insurance renewals are frequently required.

Shorter repayment periods have both lower interest rates and lower amount of total interest paid.

Therefore, it is better not to automatically choose the lowest payment amount.

10. Will the loan servicing remain with the bank’s HOA department? If not, how easy will it be to get answers about the status of the loan?

11. What is the interest rate? Why is this on the bottom of the list? Small changes in the interest rate do not have much impact on the monthly payment. For example, if the association has a 7-year $500,000 loan, each .25% change in the rate only increases the monthly payment by about $60. The answers to many of the questions above will have a much greater impact on the association’s bottom line.

OUR FOCUS IS ON YOU! You might think that a big company would not be able to provide you with the personal service that you are looking for. In reality, you can expect better, more responsive – and yes, more service from us. We haven’t forgotten our small company values. We grew because we kept our promise to provide the best service to our clients.

Learn more at www.massingham.com.

Serving Clients from Offices in: Campbell | Concord | Hayward | Roseville | Signal Hill Tel: (800) 863-6277 | Web: www.massingham.com

There are many aspects of an association loan to consider. Even if your first question remains “what is the interest rate”, there is not a single answer. Most banks do not offer one rate for all loans. Rates are often higher for longer repayment periods or smaller dollar amount loans. Shorter repayment periods have both lower interest rates and lower amount of total interest paid. Therefore, it is better not to automatically choose the lowest payment amount. But rather, it is better to choose an affordable payment amount that may have a shorter repayment period in order to maximize the benefit of a lower interest rate and reduce total interest cost.

Once you are comfortable with the bank you have chosen, it will be a good time to have the banker review several scenarios to determine the best terms for your individual association.

Geri Kennedy is Vice President of First Bank Association Services, a member of several ECHO Resource Panels, a former member of the ECHO Board of Directors, and ECHO’s 2002 Volunteer of the Year.

ECHO Journal | October 2012

25

26

October 2012 | ECHO Journal

By Jeffrey T. Smith AIA, NCARB

Permits? What For? rom time to time the question of building permits comes up. It is amusing to hear some of the conversations about what types of work require a permit and what types do not.

In almost all cases the folks involved in the conversation are misinformed.

F

While presenting Architectural Best Practice Policies to a board of directors, a question regarding permits for above

ground spas came up. The answer is yes, it requires a permit, if the spa is greater than 24 inches deep, or holds more than 5,000 gallons of water or needs gas or electric utilities to operate.

Last week we had to drag a general contractor into a local City Building Department to discuss permits with the Chief Building Official (CBO). The contractor was certain he did

ECHO Journal | October 2012

27

Amazon customers gave it a 5-star rating

2012 Condominium Bluebook Everything about Homeowner Associations $17.00 Member Price $25.00 Non-Member Price This well-known compact guide for the 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.

Order today from ECHO! Call 408-297-3246, fax at 408-297-3517 or order online at store.echo-ca.org

28

October 2012 | ECHO Journal

not need permits and had been repairing and replacing decks, guardrails, handrails and stair stringers throughout a condominium complex over the course of the past three or more years without permits. He was dismayed to learn that he was in violation of his contract and the law. He was relieved when the CBO decided that he would not fine him double the permit fee as allowed by the California Building Code (CBC). He dodged a $40,000 bullet. Most cash strapped cities would have fined him and then reported him to the State Contractors Licensing Board for additional fines and punishment.

We would be pleased if this was an isolated case but it is not. A few months ago, while working on a project requiring our construction management services, we met with the interior restoration contractor responsible for reconstructing unit interiors that had been damaged due to roof leaks. We were both in agreement that permits would be required and that they would secure the needed permits prior to beginning work.

They completed the first unit, we asked for a copy of the permit card before we would approve payment. They sheepishly responded that they had not secured a permit. They did not repeat the same mistake again and have since performed magnificently.

California Building Code To help managers and others recognize what work requires permits, we have included excerpts from the CBC below. The CBC is derived from the International Building Code (IBC), which is used in all the other states. The section number we reference may be different between the CBC and the IBC but the text will likely be the same. The following Section 105.1 of the 2010 CBC discusses in general what type of work requires a permit; Section 105.2 addresses very specifically what work does not require permits.

Section 105.1 Any owner or authorized agent who intends to construct, enlarge, alter, repair, move, demolish, or change the occupancy of a building or structure, or to erect, install, enlarge, alter, repair, remove, convert or replace any electrical, gas, mechanical or plumbing system, the installation of which is regulated by this code, or to cause any such work to be done, shall first make application to the building official and obtain the required permit.

Section 105.2 Work exempt from permit.

Exemptions from permit requirements of this code shall not be deemed to grant authorization for any work to be done in any man-

ner in violation of the provisions of this code or other laws or ordinances of this jurisdiction. Permits shall not be required for the following: Building: 1. One-story detached accessory structures used as tool and storage sheds, playhouses and similar uses, provided the floor area does not exceed 120 feet (11 m2).

2. Fences not over 6 feet (1829 mm) high.

3. Oil derricks.

4. Retaining walls that are not over 4 feet (1219 mm) in height measured from the bottom of the footing to the top of the wall, unless supporting a surcharge or impounding Class I, II or IIIA liquids.

5. Water tanks supported directly on grade if the capacity does not exceed 5,000 gallons (18 925 L) and the ratio of height to diameter or width does not exceed 2:1.

6. Sidewalks and driveways not more than 30 inches (762 mm) above adjacent grade, and not over any basement or story below and are not part of an accessible route.

7. Painting, papering, tiling, carpeting, cabinets, counter tops and similar finish work.

8. Temporary motion picture, television and theater stage sets and scenery.

9. Prefabricated swimming pools accessory to a Group R-3 occupancy that are less than 24 inches (610 mm) deep, do not exceed 5,000 gallons (18 925 L) and are installed entirely above ground.

10. Shade cloth structures constructed for nursery or agricultural purposes, not including service systems.

11. Swings and other playground equipment accessory to detached one- and twofamily dwellings.

12. Window awnings supported by an exterior wall that does not project more than 54 inches (1372 mm) from the exterior wall and do not require additional support of Groups R-3 and U occupancies.

13. Non-fixed and movable fixtures, cases, racks, counters and partitions not over 5 feet 9 inches (1753 mm) in height.

Electrical: Repairs and maintenance: Minor repair work, including the replacement of lamps or the connection of approved portable electrical equipment to approved permanently installed receptacles.

Radio and television transmitting stations: The provisions of this code shall not apply to electrical equipment used for radio and television transmissions, but do apply to equip-

ment and wiring for a power supply and the installations of towers and antennas.

Temporary testing systems: A permit shall not be required for the installation of any temporary system required for the testing or servicing of electrical equipment or apparatus.

Gas: 1. Portable heating appliance.

2. Portable ventilation equipment.

Mechanical: 1. Portable heating applicance.

2. Portable ventilation equipment.

3. Portable cooling unit.

4. Steam, hot or chilled water piping within any heating or cooling equipment regulated by this code.

5. Replacement of any part that does not alter its approval or make it unsafe.

6. Portable evaporative cooler.

7. Self-contained refrigeration system containing 10 pounds (5 kg) or less of refrigerant and actuated by motors of 1 horsepower (746 W) or less.

Plumbing: 1. The stopping of leaks in drains, water, soil, waste or vent pipe, provided, however, that if any concealed trap, drain pipe, water, soil, waste or vent pipe becomes defective and it becomes necessary to remove and replace the same with the new material, such work shall be considered as new work and a permit shall be obtained and inspection made as provided in this code.

2. The clearing of stoppages or the repairing of leaks in pipes, valves or fixtures and the removal and reinstallation of water closets, provided such repairs do not involve or require the replacement or rearrangement of valves, pipes or fixtures.

Section 105.2.1 Emergency repairs. Where equipment replacements and repairs must be performed in an emergency situation, the permit application shall be submitted within the next working business day to the building official.

Section 105.2.2 Repairs. Application or notice to the building official is not required for ordinary repairs to structures, replacement of lamps or the connection of approved portable electrical equipment to approved permanently installed receptacles.

Such repairs shall not include the cutting away of any wall, partition or portion thereof, the removal or cutting of any structural beam or load-bearing support, or the removal or change of any required means of egress, or

www.bay-management.com www .bay-management.com

ay Comm munity Managementt is a boutique HO OA A UIVIOMUMV\ Ă…ZU [XMKQITQbQVO QV PWUMW_VMZ[ I[[WKQI\QW WV[ QV \PM OZMI\MZ *Ia )ZMI M XZW^QLM I PQOP TM^MT WN [MZ^QKM \W I [UITT XWZ\NWTQW WN I[[WKQI\QWV[ ][QVO \PM QVL][\ZaÂź[ JM[\ XZIK\QKM[ IVL J]QTLQVO KTQMV\ ZMTI\QWV[PQX[ \PI\ TI[\ NWZ aMIZ[ /Q^M ][ I KITT \WLIa \W [MM PW_ _M KIV PMTX [MZ^^M aW]Z KWUU]VQ\a

1-800-335-7060 Counties served: Alameda | Contra Costa | Marin | San F Francisco rancisco | San Mateo

2261 Market Street, #1200 San Francisco, Francisco, CA 94114

ECHO Journal | October 2012

29

rearrangement of parts of a structure affecting the egress requirements; nor shall ordinary repairs include addition to, alteration of, replacement or relocation of any standpipe, water supply, sewer, drainage, drain leader, gas, soil, waste, vent or similar piping, electric wiring or mechanical or other work affecting the egress requirements; nor shall ordinary repairs include addition to, alteration of, replacement or relocation of any standpipe, water supply, sewer, drainage, drain leader, gas, soil, waste, vent or similar piping, electric wiring or mechanical or other work affecting public health or general safety.

Quick Tips on Permits Be sure that permits are mentioned in your RFP or contracts for any construction. It should be the contractor’s responsibility to obtain the permit and the HOA’s responsibility to pay the permit fees.

Do not use the permit and subsequent City inspections as a backstop or safety net for quality control. There is a difference between code minimum and the quality you specified or contracted to construct. If needed, acquire the services of an architect, engineer or construction manager to provide periodic inspections of the work.

Find the Answers to your Questions on Condo Ownership

Bob Tedrick Construction Inc. Quality and Service Exterior Envelope Repair Servicing the Entire Bay Area

SERVICE Should you need construction help with:

An excellent guide to understanding the rights and responsibilities of condo ownership and homeowner associations operation. 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.

Order today from ECHO! Call 408-297-3246 Fax 408-297-3517 Email: info@echo-ca.org

30

October 2012 | ECHO Journal

Common Development Properties, Single Family Homes, High Rise Building Facilities and Maintenance, CID Repair and Maintenance, Litigation Support, Water Testing, Destructive and Non-destructive Testing utilizing Thermo-Imaging.

Give us a call. Estimates always free.

2021 Las Positas Ct. Suite 151 Livermore, CA 94551 Phone: 925-454-0358 ● Fax: 925-271-0210 E-mail: info@btcquality.com

www.btcquality.com

Just because the contract mentions permits does not mean the contractor will feel inspired to obtain the permits. Be sure you have systems in place to monitor the permitting. Ask for copies of the permit cards before construction, during construction and before payments are made. Before the project begins, clarify how many separate permits will likely be issued and then track them.

Permits are not optional and there is no “go free card” just because your community is strapped for cash. Avoid the temptation to minimize the importance of complying with the law. The Board is responsible for a corporation and there are consequences for poor decisions.

Make sure your project budgets include plan check and permit fees. If you are not certain, contact the local building department and ask. There are occasions, when the project is on a grand enough scale, where the City will discount their plan check and permit fees.

Jeffrey T. Smith, AIA, NCARB, is a principal of Smith Architects, Inc.

ECHO Events Calendar

Save these important dates...

Wednesday, October 3 Maintenance Resource Panel 12:00 Noon ECHO Office 1602 The Alameda, Suite 101, San Jose Wednesday, October 10 South Bay Resource Panel 12:00 Noon Buca Di Beppo 1875 S. Bascom Ave., Campbell

Thursday, November 1 North Bay Resource Panel 11:45 a.m.

Contempo Marin Clubhouse 400 Yosemite Rd, San Rafael Monday, November 12 Accountants Resource Panel 6:00 p.m.

Scott’s Restaurant Oakland Tuesday, November 13 Central Coast Resource Panel 12:00 Noon Pasatiempo Inn, Santa Cruz

Friday, October 12 East Bay Resource Panel 12:00 Noon Massimo Restaurant Walnut Creek Wednesday, October 17 Wine Country Resource Panel 11:45 a.m.

Eugene Burger Mgmt. Co. Rohnert Park October 20, 2012 Peninsula Fall Seminar 8:30 a.m.

Crowne Plaza Foster City 1221 Chess Dr., Foster City

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

Eugene Burger Mgmt. Co. Rohnert Park Wednesday, December 5 Maintenance Resource Panel 12:00 Noon ECHO Office 1602 The Alameda, Suite 101, San Jose

Wednesday, December 12 South Bay Resource Panel 12:00 Noon Buca Di Beppo 1875 S. Bascom Ave., Campbell Friday, December 14 East Bay Resource Panel 12:00 Noon Massimo Restaurant Walnut Creek

Tuesday, January 8 Central Coast Resource Panel 12:00 Noon Pasatiempo Inn, Santa Cruz Wednesday, January 16 Wine Country Resource Panel 11:45 a.m.

Eugene Burger Mgmt. Co. Rohnert Park

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

Eugene Burger Mgmt. Co. Rohnert Park Thursday, January 3 North Bay Resource Panel 11:45 a.m.

Contempo Marin Clubhouse Monday, January 7 Accountants Resource Panel 6:00 p.m.

Francesco’s Restaurant Oakland

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

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

Location ECHO Office, San Jose Contempo Marin Clubhouse, San Rafael Massimo Restaurant, Walnut Creek Scott’s Restaurant, Oakland Pasatiempo Inn, Santa Cruz Buca Di Beppo, Campbell Eugene Burger Management Co., Rohnert Park Varies ECHO Journal | October 2012

31

How to understand faulty construction

Home and Condo Defects A Consumer Guide to Faulty Construction $12.95 Member Price $17.95 Non-Member Price Construction defect litigation can be confusing, expensive and fraught with legal pitfalls. This eye-opening guide, written by accomplished construction-defect attorneys, is an essential tool for board members who need to understand the legal process.

Order today from ECHO! Call 408-297-3246, fax at 408-297-3517 or order online at store.echo-ca.org

32

October 2012 | ECHO Journal

Legislation at a Glimpse As of October 1, 2012 Bill No.

Author

Subject

Status

Position

Summary

AB 805

Torres

Davis-Stirling Revision Part 1

Signed by the Governor.

Chaptered.

Support

This is the first of two bills from the California Law Revision Commission that restate and clarify the Davis-Stirling Act.

AB 806

Torres

Davis-Stirling Revision Part 2

Signed by the Governor.

Chaptered.

Support

This is the second of two bills from the California Law Revision Commission that restate and clarify the Davis-Stirling Act.

AB 1547

Eng

Extend “Blight” Fines

Missed deadline.

Dead.

Support

This bill would remove the sunset provision in a law that allows local municipalities to fine owners of foreclosed units for failing to maintain their properties.

AB 1557

Skinner

Extend “Blight” Fines

Missed deadline.

Dead.

Support

This bill would extend the sunset provision to 2018 for a law that allows local municipalities to fine owners of foreclosed units for failing to maintain their properties.

AB 1720

Torres

Gated Communities

Signed by the Governor.

Support

This bill requires that gated communities grant access to licensed private detectives for the purpose of service of process, provided they produce required documentation.

AB 1726

Allen

Pool Maintenance

Failed passage.

Dead.

Oppose Unless Amended

This bill would require that all public pools (including CID pools) use a “qualified pool operator” as defined by law. The operator must take state-mandated courses.

AB 1745

Torres

Short Sales

In Senate Finance.

Watch

This bill would regulate short sales.

AB 1838

Calderon

Association Records

Signed by the Governor.

Support as Amended

This bill would require that a financial disclosure form be provided in at least 10-point type. It would also prohibit cancellation fees for document requests under specified circumstances.

AB 1963

Huber

Tax on Services Missed deadline.

Dead.

Watch

This bill would require the Legislative Analyst’s Office to assess potential changes to the tax code.

AB 2273

Wieckowski

Purchaser Information

Signed by the Governor.

Support

When requested by the association, this bill would require that an owner who is selling his or her unit provide information about the purchasing owner to the association within 15 business days.

SB 1244

Harman

Foreclosure Procedures

Missed deadline.

Dead.

Support

This bill eases the notice requirements for units sold in a foreclosure sale. If a unit owner is not able to be served, the bill would, among other requirements, allow the association to post notice in a reasonable location.

ECHO Journal | October 2012

33

Netwion Edi

Beyond Privatopia $20.00 Non-Member Price: $25.00 The rise of residential private governance may be the most extensive and dramatic privatization of public life in U.S. history. In Beyond Privatopia, 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.

Home and Condo Defects Member Price: $12.95 Non-Member Price: $17.95 Construction defect litigation can be confusing, expensive and fraught with legal pitfalls. This eye-opening guide, written by accomplished constructiondefect attorneys, is an essential tool for board members who need to understand the legal process.

Condominium Bluebook 2012 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 $10.00 Non-Member Price: $15.00

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.

2012 Community Association Treasurer’s Handbook Member Price: $29.00 Non-Member Price: $35.00

This well-known compact guide for operation of common interest develop ments 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.

Netwion Edi

FOR Board Members Reserve Fund Specialists Property Managers Unit-Owners, Accountants Lawyers, Builders

NEW

2 CHAP TERS ON OP ERATI BUDGETS NG

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.

RESERVE FUND

ESSENTIALS THIRD EDITION FIFTH PRINTING JONATHAN H.

JUFFS Reserve Fund Specialist

Two experts discuss reserve fund planning and control in a refreshingly readable and exceptionally levelheaded style.

GRAHAM D.

OLIVER Board President (ret.), Reserve Fund Aficionado

INCLUDES RESERVE FUNDS FOR CONDOMINIUMS COMMUNITY ASSOCIATIONS HOAs CO-OPS MEMBER-OWNED PROPERTIES MUNICIPAL FACILITIES

Questions & Answers About Community Associations Member Price: $18.00 Non-Member Price: $25.00 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.

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

The Condo Owner’s Answer Book $15.00 Non-Member Price: $20.00

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.

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.

Board Member Handbook Member Price: $20.00 Non-Member Price: $25.00 This publication is the essential guidebook for HOA Board members, dealing with governance, finances, insurance and maintenance issues.

Revised and updated in June 2012.

Dispute Resolution in Homeowner Associations Member Price: $20.00 Non-Member Price: $25.00 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 www.echo-ca.org

Bookstore Order Form Board Member’s Guide for Contractor Interviews $20.00 Non-Member Price: $25.00

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

QUANTITY

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.

SUBTOTAL CALIFORNIA SALES TAX (Add 8.375%) TOTAL AMOUNT

Yes! Place my order for the items above.

Board Member’s Guide for Management Interviews Member Price: $20.00 Non-Member Price: $25.00 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.

q Check q Visa q MasterCard Credit Card Number Exp. Date

Signature

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

State

Zip

AMOUNT

ECHO Honor Roll

About

ECHO Honors Volunteers

ECHO What is ECHO? Serving Homeowners to Build Strong Community Associations

ECHO Resource Panels Accountant Panel Marco Lara, CPA 650-632-4211 Central Coast Panel John Allanson 831-685-0101 East Bay Panel Beth Grimm, Esq., 925-746-7177 Mandi Newton, 415-225-9898 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 San Francisco Panel Jeff Saarman, 415-749-2700 South Bay Panel Toni Rodriguez, 408-848-8118 George Engurasoff, 408-295-7767 Wine Country Panel Maria Birch, CCAM, 707-584-5123

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.

36

October 2012 | ECHO Journal

Regional Seminar Speakers Marin: David F. Feingold, Esq. Wanden P. Treanor, Esq. Glenn H. Youngling, Esq. Central Coast: John Allanson Sharon Glenn Pratt, Esq. Wanden P. Treanor, Esq. Glenn H. Youngling, Esq. Wine Country: Kirk Denebeim David Hughes Roger Doncaster Mark Dunia Bill Mann Barbara Zimmerman, Esq. Bill Gillis, Esq. South Bay: Sandra Bonato, Esq. Stephanie Hayes, Esq. Rick Coats & Sandra Long Alan Crandall Larry Russell, Esq.

Annual Seminar Speakers June 23, 2012 ECHO Annual Seminar Dawn Anderson, AIA Jeffrey Barnett, Esq. Brad Barroso Tyler Berding, Esq. Sandra Bonato, Esq. Wendy Buller Ian Brown Jeff Draeger Tom Fier, Esq. Kevin Frederick, Esq. John Garvic, Esq. Vic Giacalone Sandra Gottlieb, Esq. Beth Grimm, Esq.

Allan Henderson David Kuivanen David Levy, CPA Helen Loorya Richard Lowenthal Kerry Mazzoni Mike Muilenburg Andrea O’Toole, Esq. Ann Rankin, Esq. Larry Russell, Esq. John Schneider Brian Seifert Jim Shepherd Dean Shibler Richard Tippett Steven Weil, Esq.

Recent ECHO Journal Contributing Authors June 2012 Tyler P. Berding, J.D., Ph.D. Burt Dean Hilary Lape, CMCA, AMS, PCAM Steven T. O’Brien Daniel E. Villalobos July 2012 Paul Collins, PCAM, CCAM Beth A. Grimm, Esq. Steven O’Brien Richard Tippett August 2012 Adrian Adams John Ceragioli, PRA ArLyne Diamond, Ph.D. Marc Dunia Janis Lee, CCAM September 2012 Tom Fier, Esq. Michael Hardy, Esq. Sharon Glenn Pratt Will Simons, RS Rosalia Burgueño Tapia

The Executive Council of Homeowners (ECHO) is a nonprofit membership corporation dedicated to assisting California homeowners associations.

ECHO provides help to homeowners associations on many fronts: finances, legal issues, insurance, maintenance and management. Members receive help through conferences, trade shows, seminars, 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 ECHO Membership • Subscription to monthly magazine • Updates to the Association Statute Book • 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 Non-members/Homeowners Businesses & Professionals

$50 $75 $125

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 408-2973246 or visit the ECHO web site (www.echo-ca.org) to obtain an application form and for more information.

ECHO Marketplace

Advertiser Index

The place to find business and professionals for your association

California’s Premier Reserve Study Provider Offering the same outstanding service, excellence, and expertise for over 20 years!

800-500-8505 · Fax: 800-500-7305 · www.ARA-LLC.com

JEFFREY P. WIDMAN ATTORNEY-AT-LAW Mediator, Arbitrator and Trial Attorney for Associations and Homeowners www.widmanlawoffices.com (408) 288-6777 • jpwidman@comcast.net

2 MONTHS management fee for FREE!*

We’ll beat any competitor’s price by 25%.

MORE SERVICE: Calls & Emails returned same day. Work completed by deadline.

*Prorated

Neighborhood Association Management, Inc. (800) 811-0841 x22 Dee@Neighborhoodam.com www.Neighborhoodam.com

A collection of “Condo Q&A” published in the Los Angeles Times Questions & Answers About Community Associations

By Jan Hickenbottom

Member Price: $18.00 Non-Member Price: $25.00

Ace Property Management . . . . . . . .22 American Management Services . . .11 Angius & Terry . . . . . . . . . . . . . . . . .7 A.S.A.P. Collection Services . . . . . . .16 Association Reserves . . . . . . . . . . .29 Bay Community Management . . . . .29 Berding | Weil . . . . . . . . . . . . . . . . .40 BTC Bob Tedrick Construction . . . . .30 Collins Management . . . . . . . . . . . .10 Community Management Services . .30 Compass Management . . . . . . . . . .13 Cool Pool Service . . . . . . . . . . . . . .10 Cornerstone Community Mgmt. . . . .32 Ekim Painting . . . . . . . . . . . . . . . . .25 Eugene Burger Management Co. . . .18 First Bank Association Bank Srvcs . .13 First Guardian Communities . . . . . .12 Flores Painting . . . . . . . . . . . . . . . .32 Helsing Group, The . . . . . . . . . . . . .22 M&C Association Mgmt. Services . .24 Massingham and Associates . . . . . .25 Mutual of Omaha Bank . . . . . . . . . .23 PML Management Corp. . . . . . . . . .19 Pollard Unlimited . . . . . . . . . . . . . .24 Professional Gutter Services . . . . . .10 R. E. Broocker Co. . . . . . . . . . . . . .19 Ram, Olson, Cereghino & Kopczynski .2 Rebello’s Towing Service . . . . . . . . .23 REMI Company . . . . . . . . . . . . . . . .29 Saarman Construction . . . . . . . . . .16 Statcomm . . . . . . . . . . . . . . . . . . .24 Steve Tingley Painting . . . . . . . . . . .39 Varsity Painting . . . . . . . . . . . . . . . .17

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. Order today from ECHO! Call 408-297-3246, fax at 408-297-3517 or order online at store.echo-ca.org

ECHO Journal | October 2012

37

New election rules: $500 In today’s economic crisis, there may be some items that associations can cut to reduce costs. ECHO membership is not one. Let’s face it, educated board members are better fiduciaries, which helps them to avoid costly law suits and possibly personal liability.

ECHO is the premier resource in California for board member education. ECHO offers new articles each month with practical and easy to understand advice about current California requirements, and what may be on the horizon. ECHO staff is available by phone or E-mail to answer members’ questions about association problems or to recommend competent professional services when necessary.

And with discounted member rates at more than a dozen educational events throughout the year, ECHO is simply the best educational resource for California homeowners.

Avoid Litigation Each year, as a member benefit, ECHO sends every board member a copy of the updated Community Association Statute book. Every issue of the ECHO Journal and every seminar examine one or more aspects of compliance with association law, because one of the major causes of expensive litigation is ignorance of the law.

Mailing ballots: $200 Make Better Financial Choices Many associations struggle to understand reserve funding requirements and strategies, the benefits and disadvantages of using special assessments, proper collections practices, and even how to determine what components the association is required to maintain.

At a time when wise financial planning is essential, ECHO members have access to a wealth of articles about reserve funding, budgeting, insurance, collections, and much more.

Fight Costly Regulation Every year, Sacramento legislators introduce more legislation that confuses the job of California board members and increases the costs of compliance. ECHO is committed to fighting unnecessary regulation in California and promoting the interests and welfare of common interest developments.

Hire Competent Professionals ECHO offers a variety of articles and publications to help members evaluate their service providers, including questions to ask prospective management firms and contractors. All ECHO Journal articles are available to members at no cost, and publications are sold to members at a discount.

Avoiding a lawsuit: Priceless.

Spend a Little, Get a Lot The cost of ECHO membership is minimal. In a worsening economy, associations are looking to cut big expenses from their budgets. Yet, ECHO membership is as little as 25¢ per unit each month. For that small cost, here’s what every board member receives as part of being a member of ECHO: • A subscription to the ECHO Journal • An annual copy of the current Community Association Statute book • Unlimited access to ECHO’s library of past articles • Telephone consultations with ECHO staff about their problems • Reduced fees for ECHO events • Discounted prices on publications • And much more…

In These Tough Economic Times, ECHO Membership is a Necessity As the only California organization devoted exclusively to board member and homeowner education, ECHO is a one-of-a-kind resource that your association can’t afford to lose.

ROT

W h o w a s re s p o n s i b l e f o r i n s u r i n g t h e q u a l i t y o f t h i s c o n s t r u c t i o n ?

W h a t h a p p e n e d t o t h e q u a l i t y c o n t ro l ? W h y w e re b u i l d i n g c o d e s i g n o re d ? W h e re w e re t h e i n s p e c t o r s ? W h y d i d i t f a i l , a n d w h a t c a n be done about it?

TThese h e s e aare re rreasonable e a s o n a b l e qquestions. uestions. W Wee hhave a v e tthe h e aanswers. nswers.

W h e n C o n s t r u c t i o n F a i l s , We a re y o u r Q u a l i t y C o n t ro l .

WWW W.. B E R D I N G - W E I L . C O M