ECHO Journal - November 2013

Mandatory Funding?

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Winning Strategies for Managing Maintenance Costs p.12

Annual Financial Statement Review Working with Your CPA p.18

When Good Reserve Intentions Go Analysis and Bad Implementation p.24

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November 2013

Serving Community Associations

echo-ca.org

Mandatory Funding?

Not Discretionary in California p.8

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CONTENTS

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Mandatory Funding?

Did you know that California has a mandatory full-funding statute for community associations? Civil Code Section 1366 says: “Except as provided in this section, the association shall levy regular and special assessments sufficient to perform its obligations under the governing documents and this title.”

Winning Strategies for Managing Maintenance Costs

Building maintenance in common interest developments can be a burdensome task, particularly in older developments. Often it is neglected due to a lack of funding and a belief it’s not necessary.

Deferring routine maintenance only accelerates the damage and overall cost to correct.

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Annual Financial Statement Review Working with Your CPA

An annual review is meant to provide limited assurance that no material modifications are necessary (beyond those material adjustments already identified in their review) in order to bring your financial statements to be in conformity with GAAP reporting.

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When Good Intentions Go Bad

This article addresses ten real-life examples of situations faced by boards of directors. Not all decisions are easy. Be careful not to ignore a problem and hope it will go away.

Reserve Analysis and Implementation

The most important function of the board of directors is preservation of the property for the quiet enjoyment of the residents. And the only effective way to do that is to objectively and thoroughly understand the elements of a maintenance plan and its realistic costs.

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

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

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

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

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

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

DEPARTMENTS

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News from ECHO

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ECHO Sacramento Educational Seminar — November 16th

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ECHO Bookstore

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Advertiser Index

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ECHO Event Calendar

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ECHO Volunteers

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NEW @ echo-ca.org

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Legislation Overview

Directors Jerry L. Bowles Stephanie Hayes Robert Rosenberg Brian Seifert Steven Weil

John Garvic David Levy Kurtis Shenefiel Wanden Treanor

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

November 2013 | ECHO Journal

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news from ECHO

News From ECHO November 2013 By now, you should be knee deep into budgeting for 2014. Whether you are finished or still working on the numbers, the topics covered by our experts in this edition of the Journal will be sure to inspire.

Veteran attorney and advocate for strong communities, Tyler Berding, encourages California associations to comply with state law requiring full funding to meet reserve obligations.

Construction expert, John Schneider, offers his insight for tackling the daunting task of making necessary repairs without adequate reserve funds. It’s a story with a happy ending, but the moral is: plan and fund.

CPA, Jim Ernst discussed the elements of your annual financial statement review, and the importance of communicating with your CPA to obtain an accurate and reliable review.

Another of our HOA attorneys, Tom Fier, outlines ten real-life scenarios that illustrate why paying close attention to your CC&Rs is critical to the health and welfare of your association.

Industry insider, Bert Dean, focuses you on conducting a reserve analysis and developing an implementation plan as the keys to successfully preserving your community’s property for the quiet enjoyment of the residents.

I don’t think it can be said too many times: fund your reserves!

I hope you enjoy the ECHO Journal, and take the opportunity to visit the ever growing stock of information on our website, www.echo-ca.org. If there is anything we can do to enhance your membership experience, I hope you will let us know.

Best,

Brian Kidney Executive Director

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D LE U TH ED 16 H C OV ES R ON T

Sacramento Educational Seminar Saturday, November 16th, 2013 8:30 AM to 12:30 PM

ADDRESS

AGENDA

Westin Hotel 4800 Riverside Blvd.

Sacramento, CA 95822

HOT TOPICS:

SPEAKERS:

The Business of Being an HOA

Ian Brown, CCAM

HOA Financials

William Erlanger, CPA Adam Haney, CPA

Price:

New Davis-Stirling

Deon Stein, Esq.

$59 $49 Members $69 $59 Nonmembers Prices go up on Nov 6!

Join us at our first-ever Sacramento Seminar and get expert legal guidance, financial tips, and more. The Sacramento Educational Seminar is the perfect opportunity to meet fellow board members, strengthen your community, and reduce your association’s liability.

Watch our website and the ECHO Journal for more speaker and topic announcements.

Sponsor

November 2013 | ECHO Journal

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MANDATORY

FUNDING? The Board’s Decision to Fund a Community Association Is Not Discretionary in California

By Tyler Berding, JD, PhD

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November 2013 | ECHO Journal

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D

id you know that California has a mandatory full-funding statute for community associations? Civil Code Section 1366 says: “Except as provided in this section, the association shall levy regular and special assessments sufficient to perform its obligations under the governing documents and this title.” 1 (Emphasis added) It doesn’t say, “May” or “Only when I feel like it” or “let me think about it.” It says “shall” and that means assessments adequate to do the job are mandatory up to the limits of the board’s authority. In California, the board has the authority to increase regular assessments up to 20% over the prior year and can impose a special assessment of up to 5% of the gross budget, all without a vote of the members.2

Not to put too fine an edge on it, but in legal terms “shall” means: “As used in statutes, contracts, or the like, this word is generally imperative or mandatory... the term ‘shall’ is a word of command, and one which has always or which must be given a compulsory meaning; as denoting obligation...The word in ordinary usage means ‘must’ and is inconsistent with a concept of discretion.”3 And further: “It has the invariable significance of excluding the idea of discretion, and has the significance of operating to impose a duty which may be enforced, particularly if public policy is in favor of this meaning...”4 Legislators use the word “shall” when they want to eliminate options. So as used in Civil Code Section 1366(a) it is the stated intention of the legislature that boards of directors of community associations be legally obligated to assess as necessary to achieve the funding goals of the association. Now, while the law limits the board’s authority to the caps indicated above, it requires a board to fully fund within the limits of its authority. This is typically not done, however, and boards of directors commonly view various funding goals, such as those set out in their reserve study, as optional.

Recent surveys revealed that the average association has only 50% of the cash in reserves that its reserve study calls for.

That’s not 50% of the funds that they will eventually need, that’s 50% of the cash that the reserve study calls for them to have on hand now. That can only be achieved by ignoring the funding goals set by the reserve study and setting 10 echo-ca.org

assessments below that which is necessary to fully fund the reserve account.

But if the law is that assessments must be set at levels necessary to fully fund the association’s various obligations, why are so many reserve budgets funded at levels way less than 100%?

The problem is that board members are owners too, and any increase in assessments affects them just as much as any other member, and therein lays the rub. Notwithstanding that a board has a statutory duty to impose adequate assessments and, unlike a lot of other states, also has the discretion to raise assessments without a vote of the

The truth is that maintaining underfunded budgets in the face of clear statutory mandates is only possible because there is no enforcement mechanism provided in the law.

members up to the statutory limits they rarely exercise that authority. And if that’s the case, where is the other 50% going to come from when it’s needed?

And when it is needed, raising 50% more than you have on hand by relying on the members to approve a large special assessment is usually a doomed scenario and future owners will eventually have to make up the difference, while present owners may escape the obligation.

The truth is that maintaining underfunded budgets in the face of clear statutory mandates is only possible because there is no enforcement mechanism provided in the law. There is no government audit, for example, of association budgets. There is no specified penalty for violating the provisions of the statute. There is not even a state agency in California whose job it is to oversee this and similar provisions of the Davis-Stirling Act. The California Department of Real Estate

parts company with every community association once the last unit is sold by the developer. With no state oversight, strict mandates which can be routinely ignored become no better than simple advisories. Of course, an owner, perhaps called upon to approve a large special assessment necessary to make up for years of underfunding, might voice their displeasure at being put into this situation by claiming that the association and its prior boards failed in their statutory duties--and someday a court might agree, given that violation of a statutory obligation can constitute negligence.5 And then there is the need to uphold respect for the law in general. There is a legal maxim that says something to the effect that: “If you want to know what the law really is, ask someone who routinely flaunts it and they’ll tell you what they can get away with.” In the case of community associations we’re not suggesting that directors lack sufficient appreciation or respect for the law, but rather that they sometimes fail to understand the nature of their obligations. Perhaps if it was explained more carefully, they would follow the law and impose assessments that will adequately fund their associations.

Or not. Let’s not forget what we stated above, that without enforcement, politics, and not economics are going to carry the day when it comes to setting assessments.

Perhaps it’s time to put an end to voluntary compliance and put some teeth in the law. This may be necessary if we are going to protect future generations of owners from having to pay the deferred obligations of their predecessors.

1

California Civil Code Section 1366(a).

2

California Civil Code Section 1366(b).

3

People v. Municipal Court, 149. C.A. 3d 951, 197.

4

People v. O’Rourke, 124 Cal App. 752.

The “negligence-per-se” doctrine provides that in certain situations an administrative regulation or municipal ordinance may be used to set the standard of care in a negligence case.

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Tyler Berding, JD, PhD, is the founding principal of Berding | Weil, a law firm devoted to serving Common Interest Developments. He has served on ECHO’s board of directors, and is a frequent contributor to the ECHO Journal and speaker at ECHO events.

November 2013 | ECHO Journal 11

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LESSONS FROM THE FIELD WINNING STRATEGIES FOR MANAGING MAINTENANCE COSTS

By John R. Schneider

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Building maintenance in common interest developments can be a burdensome task, particularly in older developments. Often it is neglected due to a lack of funding and a belief it’s not necessary. These two reasons alone account for much of the deferred repairs and high maintenance costs most associations are currently living with. Deferring routine maintenance only accelerates the damage and overall cost to correct.

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ne association has been proactive in implementing basic strategies for managing their maintenance and containing costs. The result has been an extension of the service life of building components, while allowing their reserve funds to accumulate. In this case, it was the concerned board members who realized they needed to take better control of their association’s funding and develop a plan to implement the needed repairs to their complex.

Unsure where to start, the board sought the services of a construction consultant to assist in developing a short and long term maintenance repair plan that would reflect both available and projected funding. The process began several years ago, and the benefits can be seen today as the association is currently on track and up to date with their maintenance requirements.

At the time, the association was 27 years old, consisted of 96 units in 12 buildings with visible deterioration to the exterior siding and roof covering. The complex was currently scheduled for repainting, and in the next three years, siding and roof replacement. All About Homes (AAH) was contacted by the association in 2007 to discuss options for determining needed exterior repairs with the limited funding available.

According to the reserve studies, the wood siding, trim, and roof covering were due for replacement at a projected cost of $2,500,000.00. Yet, the reserves for the siding and roof replacement were only 40% funded. The board needed to know how much of the siding and trim required replacement now, and whether the roof covering could be repaired to last another two years.

Evaluate the Current Condition A two-fold approach was employed to assess what work needed to be performed. First, establish and document the current condition of the exterior siding, trim and roof coverings. AAH performed a baseline evaluation inspecting the exteriors and roofs, including the detached garages. Second, the observations were

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listed for each unit and grouped into three categories.

1 2 3

Items needing immediate attention Items that could wait another year to repair Items that could be repaired during the routing maintenance of the buildings.

old, it was discovered replacement costs were not current and square footage amounts were incorrect, rendering the report unreliable. Wanting accurate information the board commissioned an updated reserve study.

Based on the available funding and cash reserves, the board set preliminary budgets for the exterior repairs, and began to discuss how the work could be structured to maximize cost savings.

In order to do this, the board divided the work into three categories, exterior (siding, trim, stairs), roof, and painting.

Determine the Scope of Work

In this case, it was the concerned board members who realized they needed to take better control of their association’s funding and develop a plan to implement the needed repairs to their complex.

The overall scope of repairs was extensive and involved several components of the building. How the work was to be performed and the scheduling of the different trades had to be considered and closely monitored. In order to minimize the uncertainties of the overall job and test the planned process it was decided to stage the job in three phases of four buildings each. Structuring a job in phases is advantageous for both the association and the contractor. It limits the work to a specific part of the complex, and allows for a learning curve for the unexpected.

The results of the evaluation revealed that 40% of the siding and 30% of the trim required replacement, which was within the existing available funding.

However the evaluation also revealed unanticipated repairs to approximately 35% of the upper floor wood steps and some repair to the rear decks. The wood roof covering, although nearing the end of its life, could be repaired to extend its serviceability. These results gave the board a clearer picture of repair priorities.

The results of the baseline evaluation were tabulated and listed in a format contractors could use when preparing a proposal. Guidelines were added to the list of repairs describing the association’s expectations as to how the work was to be done. For example, it was specified that when replacing the siding proper flashing techniques (some of which were omitted during original construction) were to be employed. The guidelines also stipulated on when partial sheets of siding and trim could be used as opposed to full pieces.

Review Reserve Study, Funding, and Expenses

Solicitation of Bids

The board then reviewed the reserve study and its finances. Although the current reserve study was only two years

In order to ensure the repairs were performed by qualified contractors, efficiently, and according to the desires of

the association, a request for proposals (RFP) was drafted and sent out to roofers, painters, and general contractors. Each contractor was met on site and walked through the job to point out the specifics of how the work was performed, the staging of the materials, and the scheduling of the various trades. Meeting with the contractors provided feedback as to what would work best for them, where cost savings could be achieved, and give the board an opportunity to get a sense of the contractor’s potential capabilities and limitations. As part of the bidding process unit pricing for typical but unseen common repairs was requested of each contractor.

again with each contractor to review interfacing with the other contractors, change orders, material storage, hours of operation, protection of the work area, and other restrictions normally associated with working in Common Interest Developments.

Start on a Small Scale Prior to starting the job, a site construction meeting was held with all

contractors, delineating responsibilities and the sequencing of work. Potential problems and concerns were addressed and resolved.

Due to the various complexities of the overall job, it was decided to start work on just one of the four buildings to see how the job progressed and what type of issues would have to be dealt with.

The scheduling and interfacing of the contractors went well, however hidden damage was discovered during the removal stage. The other three buildings were worked on in succession.

Once the bids were received, the proposals were reviewed with the board. The time spent developing the RFP and defined scope of work resulted in comparative bid proposals which made it easier for the board to understand the differences in pricing. Most of the bids were within 10% of one another, eliminating the very high and very low proposals. Once the bids were narrowed between two contractors, references were checked, and prior jobs were reviewed.

Check References and Review Prior Work It is critical to review a contractor’s prior work to evaluate the workmanship.

Of the two general contractors being considered, one was eliminated due to the poor overall workmanship at one of his referred complexes. This was also true for the painting contractor. The prior work of both roofing contractors was professional and well done. After this process, it was evident which contractor was best suited for the repairs to the complex.

Awarding the Contract, Walk the Job Once the contracts were awarded, each bidding contractor was notified of the board’s decision, whether they were awarded the contract or not. Prior to signing the contract, the job was walked November 2013 | ECHO Journal 15

Developing relationships with the contractors, communicating expectations clearly, and weekly site reviews of the work kept the job running smoothly and on schedule.

In the interest of efficiency and avoiding slowdowns or work stoppages, AAH was given the authority to approve change orders up to $1,500.00. Copies of approved change orders were transmitted to the board.

Knowing change orders were inevitable, we established a per unit price for the siding, trim, and stairs, as well as an hourly rate for a tradesperson in the contract for the general contractor.

This gave the association some control in verifying if the costs of a change order were appropriate.

Lessons Learned The time spent at the beginning of the job closely monitoring the work resulted in large savings in time and money.

Phase 1 (four buildings) of the project took 4 months to complete, and Phase II & Phase III took three months each to complete. The interfacing of the contractors went smoothly and after the first building, the change orders were controlled.

Phase I also gave us an opportunity to reassess how the job was being structured. Contingencies for hidden damages were increased to 15%, close to what the actual expenses were. It

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was decided to take the responsibility for painting away from the general contractor and award it to a painting sub contractor. The quality and execution of the painting did not meet the association’s expectations.

The general contractor and the roofing contractor were awarded contracts for Phases II & III. Developing relationships with the contractors, communicating expectations clearly, and weekly site reviews of the work kept the job running smoothly and on schedule. At the completion of the project, the value of a project manager was evident. Having a project manager on site to oversee the work and interface with the contractor allowed problems to be resolved quickly and information communicated clearly.

In terms of the total cost of the project, the siding, stair, roof replacement, and painting ended up costing 60% of the reserve estimate and the fees for the project management were approximately 5% of the total job.

Once the work was completed, the board decided to establish a bi-annual evaluation of the complex as a basis for its maintenance needs. They reassessed the non-critical items from the original baseline evaluation and incorporated them into the annual maintenance schedule. Within three years their annual maintenance costs were reduced by approximately half, and calls for repairs diminished to a manageable level.

John R. Schneider licensed general building contractor and certified code specialist. Since 1985, he has been president of All About Homes, Inc., an East Bay consulting company that specializes in the investigation of construction related deficiencies, project management, and the facilitation of disputes between owners, associations, and vendors. Mr. Schneider is a member of the ECHO Maintenance Panel.

Questions can be directed to Mr. Schneider at jrschneider@allabouthomes.com, or by calling 510-537-6000

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Annual Financial Statement Review Working With Your CPA James H. Ernst, CPA, MS-Tax, CCAM

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he California Civil Code, under Section 1365(c) [new code § 5305] of the Davis-Stirling Common Interest Development Act, requires that: “A review of the financial statements of the association shall be prepared… by a [Certified Public Accountant – CPA]… for any fiscal year in which the gross income… exceeds… $75,000.

A copy of the review… shall be distributed within 120 days after the close of each fiscal year.”

Working with your CPA— To insure this required annual review is handled in the most efficient, effective and timely manner, you should know what to expect from your CPA and what your responsibilities are.

What Characteristics Should Your CPA Possess?

To begin with, it’s important to know what characteristics you should look for when selecting a CPA to provide this review.

Independence – The CPA must

be independent. They cannot have “… any direct or material indirect financial interest in the [association]”. In addition, they cannot act as “…a member of management” (make bookkeeping or management decisions) for the association for the year under review; otherwise, they could be reviewing their own work (AICPA Rule 101).

Knowledgeable – The CPA

must have a working knowledge of the homeowners’ association industry.

Therefore, you should select a CPA that has an extensive record of working with homeowners’ associations, and is an active participant in the various trade organizations for our industry.

Communication – The CPA

must maintain direct communication with the Board of Directors and management (hereinafter “management”), and they must be willing to work directly with those responsible for preparing the association’s financial statements – the board treasurer, the bookkeeping department within a management company, or an external bookkeeping service provider.

Your CPA cannot successfully perform a review if they are working in a vacuum; therefore, failure to work with those

who prepare your association’s financial statements (hereinafter “bookkeeper”) can result in misunderstandings as to the nature and accuracy of the information included in your annual financial report.

Licensed – Don’t forget to check the status of the CPA’s license with the state. Simply go to the website for the California Board of Accountancy (www.dca.ca.gov/cba/lookup.shtml).

Peer Review – Ask to see the CPA’s most recent peer review report, which is titled “System Review Report”.

All California licensed CPAs are required to have a Peer Review every 3 years.

According to the Board of Accountancy, a “peer review is a systematic review of a [CPA] firm’s accounting and auditing [review] services performed by a peer reviewer who is unaffiliated with the firm…to ensure work performed conforms to professional standards.”

What Should You Expect From Your CPA? Once you have selected a CPA, you should know what to expect your CPA to do in order to accomplish their goal, which is to examine the information in your financial statements, recommend any appropriate adjustments, and issue a report to the Board of Directors for distribution to the membership.

The rules and procedures that your CPA is required to follow have been well established by the American Institute of Certified Public Accountants (AICPA).

These rules and procedures are set forth in the AICPA’s Statement on Standards for Accounting & Review Services, No. 19 (SSARS 19).

Under SSARS 19, the CPA must perform selected procedures sufficient to provide a reasonable basis that there are no material modifications to your financial statements. This process is based on making inquiries as well as performing analytical procedures related to your financial statements. This is designed to provide the CPA with limited assurance that the financial statements are prepared in accordance with Generally Accepted Accounting Procedures (GAAP).

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This work can occur: before the year is over, and after your financial statements have been presented for review.

Before the Year is Over Establish an Understanding (Review Engagement Letter) Your CPA must first establish an understanding with management in writing as to the nature and extent of the work to be performed – a Review Engagement Letter. This engagement letter must be signed and dated before any work can begin.

Initial Inquiries and Selected Financial Analysis Your CPA may make initial inquiries of the Board of Directors, management and the bookkeeper regarding the accounting practices for your association, and perform selected financial analysis before the end of the year. The objective is to develop a clear understanding of these practices and, in the event problems are identified, to discuss those problems with management before the end of the year.

After Your Financial Statements Have Been Presented for Review Inquiries and Analytical Procedures Although inquiries may initially be performed before the year is over, they are to continue throughout the entire review process. Analytical procedures are based on information obtained through inquiry, and on the relationships between the current year’s financial activities and the current year’s budget, as well as other financial information.

These analytical procedures may require your CPA to examine various individual account balances and, if necessary, to examine supporting documents to make

sure there are no material discrepancies, or if there are, to insure these discrepancies are properly reflected in their recommended adjustments.

It is management’s (including the bookkeeper’s) responsibility to provide your CPA with whatever information they may need to accomplish their goal. Failure to work directly with your CPA can result in the review not being completed or, if completed, not available for distribution to the membership on a timely basis.

An annual review is meant to provide limited assurance that no material modifications are necessary (beyond those material adjustments already identified in their review) in order to bring your financial statements to be in conformity with GAAP reporting.

Keep in mind that it is management’s responsibility to read, understand, agree to, and accept responsibility for, these recommended adjustments before the review can be completed.

It is also important to note that all recommended adjustments must have a material effect on the financial statements taken as a whole. A material adjustment is one which, if not made, would cause the reader of the financial statements to be misled as to the financial health of your association.

Because the objective of a review is to obtain limited assurance that there are no material modifications to be made to your financial statements, immaterial adjustments generally should not be made. However, they may be brought to the attention of management for future bookkeeping purpose.

There may be some exceptions to this materiality rule, as follows:

Income Taxes – It is

common practice for your CPA to prepare your annual tax returns simultaneously with their review.

Therefore, they may recommend adjustments that are designed simply to agree your financial statements to your tax returns.

Assessments – Members’ Recommended Adjustments During the course of their review, your CPA may find that adjustments are necessary to insure your financial statements are presented in accordance with GAAP. These adjustments are to be presented in the form of recommendations, and must be communicated to management and the bookkeeper before the review can be finalized. This requirement enables everyone to make sure there aren’t any misunderstandings as to the nature and reason for any recommended adjustments.

This open dialogue between all parties will prevent potential mistakes by the CPA and will assist the bookkeeper in establishing new, or improving upon existing, accounting procedures for future financial reporting.

assessments should agree to the amount actually charged to the members. Therefore, if there are immaterial discrepancies between the amount reported on the financial statements and the amount actually charged, then an immaterial adjustment may be warranted.

Management Requests –

Management may request that all adjustments discovered by the CPA be recorded regardless of their materiality. Whenever this request is made by management, immaterial adjustments are to be recorded.

If there is disagreement as to the nature or extent of the recommended adjustments and that disagreement cannot be resolved, the only recourse the CPA has is to: 1. Withdraw from the engagement and not issue a report, or

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2. Issue a report, but with a middle paragraph quantifying the financial effect of the disagreement on your financial statements.

Accountant’s Review Report An annual review is meant to provide limited assurance that no material modifications are necessary (beyond those material adjustments already identified in their review) in order to bring your financial statements to be in conformity with GAAP reporting.

Therefore, your accountant’s (CPA’s) review report is intended to disclose this fact. Please note that the accountant’s review report is owned by the CPA; whereas, the financial activity reflected in the report is owned by the association.

Review Report – The report issued by the CPA identifies the period covered by the review and reflects the CPA’s position that no material modifications should be made to the financial information.

Financial Statements –

The reviewed financial statements will include a Balance Sheet, Income Statements (for each fund or activity), and a Statement of Cash Flows. These financial statements can only be changed by the CPA with management’s permission, see Recommended Adjustments above.

Notes to Financial Statements – The notes to

financial statements are an integral part of the review. However, most knowledgeable CPAs will work with management in developing these notes to make sure they comply with all disclosure requirements and clearly identify various accounting policies and procedures reflected in the financial statements.

Supplementary Information – Unique for

homeowners’ associations is the addition of required supplementary information. This supplementary information, in summary format, reflects the information contained in the association’s most recent reserve study.

Management Representations The final document to be provided by management to the CPA is a Management Representation Letter. This letter states that management takes full responsibility for the preparation and fair presentation of the financial statements in accordance with GAAP, and is responsible for designing, implementing and maintaining internal control.

This Management Representation Letter must be signed by management before the review report can be issued by the CPA.

be available for distribution to the membership no later than 120 days after the end of the association’s fiscal year.

Assuming that management has reviewed and approved the financial statements as presented by the CPA without disagreement, and the Management Representation Letter has been signed, the “final” report may be issued.

A Review is Not an Audit Your governing documents may call for an audit of your financial statements to be performed by a CPA, which is a higher level of examination, but this is not a requirement of the Davis-Stirling Common Interest Development Act. The civil code only calls for a review; therefore, please don’t confuse the two – a review is not an audit.

Conclusion As you can see, once you have selected your independent CPA, there are procedures that must be followed during the course of their review (SSARS 19). More importantly, a successful review engagement requires open and regular communication as well as full cooperation between your CPA, management and the bookkeeper.

Without regular communication and full cooperation between all participants, the review may not be completed accurately or timely. Therefore, it is essential that everyone works together to be able to accomplish this very important required annual review of your association’s financial statements.

Timeliness Finally, your CPA must complete their review on a timely basis, which depends to a large degree on the full cooperation of management. The review is to be completed and a report issued in time for management to have a chance to examine the results of the review (including accepting the recommended adjustments and signing the representation letter). The “final” report must

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James H. Ernst, CPA, MS-Tax, CCAM 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 866.289.6000 or jim@ernst-cpa.com.

October 2013 | ECHO Journal 23

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When Good Intentions Go Bad 10 Scenarios: What Went Wrong and Lessons to Be Learned

By Tom Fier, Esq.

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his article addresses ten real-life examples of situations faced by boards of directors. Not all decisions are easy.

Be careful not to ignore a problem and hope it will go away. In this litigious world, if you have a question, seek advice. Surround the board with competent advisors. This will make your job easier. Sometimes, good intentions go bad. When things go wrong, there are always lessons to be learned. Read on.

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Scenario #1 In an attempt to save money and time, the board hires one of the board members to install windows at a 100 unit condominium complex.

The job is estimated to cost $300,000.

Final bill comes in at $375,000. Special assessment amount of $3,000 per unit is not enough. The board has to ask for more money. Irate members look into what happened. They discover that board did not bid the job, and there was a conflict of interest.

Homeowners sue board for breach of fiduciary duty and negligence.

What went wrong? This board had been self-managed for 15 years. The board was simply not aware that it was doing anything wrong. Prudent business practice would have been to obtain three bids for the job and to stay away from hiring a board member to do the work.

Lesson to be learned: Board members must educate themselves concerning homeowner issues. They can do this by reading informative sources such as the ECHO Journal and by attending seminars. They need to be aware of current issues facing boards, what to look out for and how to avoid mistakes like this one.

Scenario #2 A condominium complex has private streets that intersect with public streets. At one such intersection a car was making a right-hand turn. The line of sight of the driver was blocked by a tree and bushes that were growing on the corner. The car hit a 10-year-old on a bicycle. The child died of multiple head and internal injuries.

What went wrong? The board did not have regular landscape walkthroughs to view the property.

26 echo-ca.org

Lesson to be learned: Do periodic, regularly scheduled landscape walk throughs to discover any situation that needs attention. Particularly, view landscape areas that impair driving or create visibility hazards. Correct them immediately as a matter of safety.

In addition the association should maintain adequate insurance. Consult a knowledgeable insurance broker about your insurance needs.

Scenario #3 A homeowner in one association complains that there are inadequate barriers in and around the tot lot.

Young children can easily escape the reach of parents and wander into the street. The association board ignores the complaints or does not act to investigate or remedy the situation.

A young toddler runs out of the tot lot, wanders into the street and suffers permanent, serious injuries. The association gets sued for $2 million and settles for $1 million.

What went wrong? The board should listen to homeowner complaints and investigate to determine if they are legitimate and then take steps to remedy the situation. The excuse in this case that there was no money to install a fence around the tot lot did not fly with the parents of the seriously injured child. The board only had $1 million of insurance; however, the association was protected under the Civil Code and the excess judgment could not be collected against it. The association’s insurance was later cancelled and new insurance cost tripled.

Lesson to be learned: Do an annual “risk management” survey. Evaluate potential risks around the entire association complex and take steps to alleviate them. Maintain adequate insurance!

Scenario #4 In a multi-story stock cooperative, there was a clause in their bylaws that all people who wanted to reside in the building had to be interviewed.

A couple appeared. One person was in a wheelchair. They planned on moving into a unit on the fourth floor. The board casually mentioned that if there were a fire or emergency, there was no elevator and this might be a problem. The couple sued for discrimination.

What went wrong? The prospective homeowners were “testers” and looking for a reason to sue. The board members should have never made this comment, even it were true.

Lesson to be learned: Stop interviewing. Be careful of any comments that could be interpreted as discriminatory or derogatory. Be aware of current laws concerning discrimination in housing and disabilities.

Scenario #5 A thirty-year old common interest development has 200 single family houses. The association owns the streets. Sidewalks are uneven because of trees. An individual slips and falls on the uneven sidewalk and broke her ankle. The board says the association is not responsible and that it doesn’t have the money to fix the sidewalks. Individual sues.

What went wrong? The board failed to maintain the sidewalks. Thus it was negligent in its duty to maintain the common area.

Lesson to be learned: Maintain the common areas. Deferred maintenance can create risks that are not worth the gamble. If there is insufficient money, bite the bullet and initiate a specially assessment.

Scenario #6 The board of a condominium association removes a tree in front of a unit but does not contact homeowner to tell her. The homeowner claims her right to privacy had been violated.

What went wrong? The homeowner felt slighted by the board’s action and felt the board should have notified her of planned action. She believed that the right to privacy was a “property” right.

Lesson to be learned: Although the board had the authority to take out the tree, the board should have notified the homeowner before removal, so that she could state her position. Remember: a board must maintain good public relations so that homeowners do not feel at the mercy of the board.

Scenario #7 Board member “X” is incommunicado for weeks. Other board members do not like this member and they want to replace him. Board member “X” comes alive and insists that he remain on the board. The board refused and turmoil and dissention ensued. The situation leads to recall.

What went wrong? The board needed to read its bylaws to ascertain the procedure for declaring a vacancy.

Lesson to be learned: Before taking any action, consult your governing documents and the law that governs your non-profit corporation. Follow the procedure that is required; do not make any exceptions.

Scenario #8 A CID of 200 homes was built in 1992.

Leaky windows cause damage. The developer convinces the association board not to sue him, promising that

November 2013 | ECHO Journal 27

he will attempt repairs. But the developer never repairs. The association filed a lawsuit in 2003. The Court says that the developer dissuaded the board from suing and dismissed the lawsuit.

What went wrong? The board trusted the developer to repair and he “strung” the board along until the 10 year statute of limitations expired.

Lesson to be learned: When you have construction defects, you must be aware of compliance with the statute of limitations in order to sue; consult an experienced attorney promptly to guide you through this complex series of laws.

Scenario #9 A townhouse complex is built to circle a pool. The pool fence is iron and contains an iron gate. Mom, pregnant, is in her garage with a 20-month-old baby.

Her phone rings and she goes into the house. The baby crawls under iron fence and falls into pool. A neighbor sees, from her second story window, the baby in the pool and runs down to pool. Mom discovers baby is gone and sees him floating in pool. Both neighbor and mom forget keys and cannot get in the pool area. The neighbor climbs the fence to rescue baby, but he again cannot get out of pool area because he does not have a key. The baby dies and a lawsuit is filed.

What went wrong? Fence surrounding pool had enough space underneath for a baby to crawl under it. Locked gate that requires a key from the inside is dangerous.

Lesson to be learned: Check fence around pool or other potentially dangerous areas for “safety.” Strictly adhere to safety codes. Never keep inside gates to pool area locked.

Change to a latch or “escape bar.”

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Scenario #10 A 100-unit townhouse complex has extensive common area and open space. The city has a leash law.

Homeowners congregate with their dogs off leash on Sunday mornings. A small girl gets mauled by dog, leaving a permanent scar on face. A lawsuit is filed against the association. (Homeowner is a former board member).

What went wrong? Association never enforced the city leash law.

Lesson to be learned: Know your local laws and take steps to enforce them. This applies to leash laws, but also speed laws. Association should have put up signs in common area park that there is a leash law.

CONCLUSION An association has the duty to enforce the CC&Rs. It also has a fiduciary duty towards its members. This means that it must act in the best interests of its members and the association.

The decisions it makes must meet the tests of either the “business judgment rule” or the “judicial deference rule.” The business judgment rule is that the board of directors must perform its duties in good faith, in a manner that it believes to be in the best interests of the association, and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances [Corporation’s Code §7231(a)]. The judicial deference rule comes from the case of Lamden v.

La Jolla Shores Clubdominium Homeowners Association (1999) 21 Cal.4th 249, which states that the courts will defer to a board’s decision when a board, on reasonable investigation, in good faith, and regard to the best interests of the association and its members, exercises discretion within the scope of its authority in making maintenance and repair

decisions. If both of the tests are met, the board should be protected from liability.

Rules enforcement must be uniform and fair. Do not let emotions get in the way of reasoned decisions. Review your association for “risks� and take steps to alleviate them. Listen to homeowner concerns. Do not fall into the trap of tabling items on the agenda because you do not want to make a difficult decision. Someone has to make those decisions. Be informed. Avoid problems. Be creative in problem solving.

Know your governing documents. Know your community. Be sensitive to what the homeowners want. Know your procedures. Follow them. Establish priorities.

Be informed.

Tom Fier is an attorney at law with a homeowner association practice in San Mateo, CA. He is the immediate past chair of the ECHO Legal Resource Panel.

November 2013 | ECHO Journal 29

30 echo-ca.org

RESERVE

ANALYSIS AND IMPLEMENTATION Understanding the elements of a maintenance plan and it’s realistic costs.

By Bert Dean

November 2013 | ECHO Journal 31

T

he most important function of the board of directors is preservation of the property for the quiet enjoyment of the residents.

And the only effective way to do that is to objectively and thoroughly understand the elements of a maintenance plan and its realistic costs.

That is accomplished by conducting a Reserve Analysis and developing an Implementation Plan.

California law requires homeowner associations to conduct a reserve study every three years to evaluate all major components of building construction, and provide for their maintenance. The professionally prepared reserve analysis should include specifications for the most cost effective and best materials and systems available at that time. The reserve study should be accomplished by an independent professional, with verifications, licenses, and errors and

omissions insurance coverage. Materials and systems available today may not be the best or most technically evolved systems and materials available in the future, so the reserve analysis is required to be reviewed by the board of directors annually. Additionally, it may be necessary to update the Reserve Analysis with previously unforeseen tree-root damage, improvements to accommodate new technology, or construction defects.

The facilitator for implementing the reserve analysis plan should not be a resident or member of the board of directors, because of the potential for conflict of interest, and/or because they lack the professional qualifications to ensure completeness.

Financial feasibility for performing required work on schedule is a critical element. California law also requires a “reserve funding plan” to finance all the maintenance, repair and replacement identified in the reserve study. However, there is no requirement to actually fund the plan, leaving decisions about what maintenance and repair to be performed to the board of directors. Unfortunately, economic pressures tend to influence boards to defer maintenance and keep dues and assessments lower than what the professionally prepared plan provides.

Failure to adequately fund reserves almost always ends up costing more than if prudent planning had been executed, and is sometimes a recipe for disaster.

4 Review and update the q

Implementation of the reserve analysis plan begins with identifying an individual whose responsibility it will be to make the contract work go smoothly, timely, and within budget.

Construction Managers (CM) are recommended to manage the contract construction work. They are qualified to:

specification in relation to the immediate needs;

4 Prepare the RFP (Request q for Proposal) and solicit bids from qualified contractors;

4 Investigate contractors’ q qualifications;

4 Analyze the bids to insure q they meet the minimum specifications for materials and labor. Contractors need to provide copies of their current business license, contractor’s license, provide qualified insurance certification, and sign a contract work agreement;

4 Coordinate the work with q residents, property management, and city permits;

4 Inspect the work progress, q approve progress payments, and verify all labor and materials liens are properly and timely cleared.

When realistic reserve studies are properly conducted, and reserve accounts are adequately funded, homeowner associations can operate as harmonious communities.

Burt Dean is the owner of Robello’s Towing Service. Previously he owned an association management company.

Burt has been a member of ECHO and frequent contributor for many years.

32 echo-ca.org

November 2013 | ECHO Journal 33

Beyond Privatopia Non-Member Price:

$20.00 $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.

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

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

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

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

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

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

The Board’s Dilemma Non-Member Price:

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

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

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

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

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

This book is an easy to read, must-have 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.

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.

W NETION I ED

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 construction-defect attorneys, is an essential tool for board members who need to understand the legal process.

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.

34 echo-ca.org

$10.00 $15.00

$15.00 $20.00

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

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

Revised and updated in June 2012.

Dispute Resolution in Homeowner Associations Member Price: $15.00 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 Order Online at store.echo-ca.org

Bookstore Order Form Board Member’s Guide for Contractor Interviews $15.00 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 AMOUNT

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 8.625%) TOTAL AMOUNT

Board Member’s Guide for Management Interviews Member Price: $15.00 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.

Yes! Place my order for the items above.

Check

Visa

MasterCard

Credit Card Number Exp. Date

Signature

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

State

Zip

Daytime Telephone

November August 2013 | ECHO Journal 3535

36 echo-ca.org

advertiser index

about ECHO

American Management Services........28 www.amspcam.com

Helsing Group, The..............................27 www.helsing.com

Angius & Terry.......................................3 www.angius-terry.com

M&C Association Management Services...........................2 www.mccommunities.com

Applied Reserve Analysis....................11 www.appliedreserveanalysis.com A.S.A.P Collection Services.................33 www.asapcollect.com Association Reserves...........................36 www.reservestudy.com Benjamin Moore Paint & Company...27 www.benjaminmoore.com Berding|Weil .........................Back Cover www.berding-weil.com Collins Management............................33 www.collins-mgmt.com Community Association Management.........................................16 www.HOAsManagement.com Community Management Services.................................................11 www.CommunityManagement.com Compass Management........................33 www.gocompass.com Cool Pool Service..................................16 Cornerstone Community Management.........................................29 www.cornerstonemgt.biz Ekim Painting.......................................29 www.ekimpainting.com Eugene Burger Management Co.........33 www.ebmc.com First Bank..............................................17 www.firstbankHOA.com

The Manor Association........................36 www.themanorassn.com Mutual of Omaha Bank.......................36 www.mutualofomahabank.com Neighborhood Association Management.........................................29 www.neighborhoodam.com PML Management................................17 www.pmlmanagement.com Pollard Unlimited.................................22 www.guttercleaning.com R.E. Broocker Co...................................11 www.rebroockerco.com Rebello’s Towing..................................23 www.rebellos.net Saarman Construction.........................15 www.saarman.com

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

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

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

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

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

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

November August 2013 | ECHO Journal 3737

directory updates

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

New Members Pro-Craft Builders 669 Commercial Street San Jose, CA 95112 Contact: Claire Stovesand Tel: (831)558.5851

Gallaher Company 1260 Yard Ct. Suite A San Jose, CA 95133 Contact: Robert Gallaher Tel: (408) 825.1362

Maynard Rich Management Co. 2 Townsend Street San Francisco, CA 94107 Contact: Jerri Llorence Tel: (415)543.8341

Pacific Union Property Management 1716 Union Street San Francisco, CA 94123 Contact: Michael Harrington Tel: (415) 345.7610

Skuba Construction 5356 Clayton Road Suite 125 Concord, CA 94521 Contact: Dave Skuba Tel: (925)689.5900 California Stone Coating, Inc. 37909 Von Euw Common Fremont, CA 94536 Contact: Denis Gerasimov Tel: (510)284.2554 Complete Community Association Management Svcs.

1620 Pacheco Blvd. Suite C Martinez, CA 94553 Contact: Lisa Bockus Tel: (925)291.4844

J D Association Management P.O. Box 1912 Pittsburg, CA 94565 Contact: Daniel Davidson Tel: (925)247.3100 Ariana Roofing 500 Tolson Lane Aromas, CA 95004 Contact: Nieves Jauregui Tel: (831) 750.7044

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

To learn more, visit our membership page at www.echo-ca.org 38 echo-ca.org

ECHO event calendar

RESOURCE PANEL CALENDAR Thursday, November 7 North Bay Resource Panel 11:45 a.m.

Contempo Marin Clubhouse, 400 Yosemite Dr, San Rafael

Wednesday, December 11 South Bay Resource Panel 12:00 Noon Buca Di Beppo 1875 S. Bascom Ave., Campbell

Tuesday, january 14 Central Coast Resource Panel 12:00 Noon Michael’s On Main, 2591 S Main St., Soquel

Monday, November 11 Accountants Resource Panel 6:00 p.m.

Scott’s Seafood, 2 Broadway Oakland

Friday, December 13 East Bay Resource Panel 12:00 Noon Massimo Restaurant, 1603 Locust St., Walnut Creek

Wednesday, January 15 Wine Country Resource Panel 11:45 a.m.

Serv-Pro, 373 Blodgett St., Cotati

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

Tuesday, December 17 Wine Country Resource Panel 11:45 a.m.

Sam’s For Play Restaurant, 1024 Sebastopol Rd, Santa Rosa

Wednesday, January 15 Legal Resource Panel 6:30 a.m.

Scott’s Seafood, 2 Broadway Oakland

Wednesday, November 20 Wine Country Resource Panel 11:45 a.m.

Serv-Pro, 373 Blodgett St., Cotati

Thursday, January 9 North Bay Resource Panel 11:45 a.m.

Contempo Marin Clubhouse, 400 Yosemite Dr, San Rafael

Wednesday, December 4 Maintenance Resource Panel 12:00 Noon ECHO Office, 1602 The Alameda, Suite 101, San Jose

Monday, January 13 Accountants Resource Panel 6:00 p.m.

Scott’s Seafood, 2 Broadway Oakland

REGULARLY SCHEDULED RESOURCE PANEL MEETINGS Panel

MEETING

location

Maintenance

First Wednesday, Even Months

ECHO Office, San Jose

North Bay

First Thursday, Odd Months

Contempo Marin Clubhouse, San Rafael

East Bay

Second Friday, Even Months

Massimo Restaurant, Walnut Creek

Accountants

Second Monday, Odd months

Scott’s Seafood Restaurant, Oakland

Central Coast

Second Tuesday, Odd months

Michael’s On Main, Soquel

South Bay

Second Wednesday, Even Months

Buca Di Beppo, Campbell

Wine Country

Third Wednesday, Monthly

Serv-Pro, Cotati

Legal

Quarterly

Varies

November 2013 | ECHO Journal 39

ECHO honor roll

ECHO HONORS VOLUNTEERS ECHO Resource Panels

Regional Seminar Speakers

Accountant Panel Marco Lara, CPA 650-632-4211

San Francisco Steve Weil, Esq.

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

Santa Cruz Lisa Esposito, CCAM Sharon Pratt, Esq. Rob Rosenberg, CCAM Paul Schultz Rosalia Tapia, Esq. Wine Country Carra Clampitt Bill Gillis, Esq. David Hughes Ken Kosloff Tom O’Neill Steve Weil, Esq. South Bay Derek Eckert Stephanie Hayes, Esq. Robert P. Hall Jr., Esq. Fresno Geri Kennedy David Levy, CPA Michael J. Hughes, Esq. Walnut Creek Stephanie Hayes, Esq. Lisa Esposito, CCAM Rob Rosenberg, CCAM Beth Grimm, Esq. Monterey John Allanson Diane Rossi, PCAM, CCAM Sandra Bonato, Esq. ECHO San Jose Speakers September 24, 2013 Board Essentials Tyler Coffin Lisa Esposito, CCAM Pat Falconio Brian Kidney Mike Muilenberg Rob Rosenberg, CCAM Brian Seifert Wanden Treanor, Esq. Hot Topics Anton Bayer Ian Brown, CAM

40 echo-ca.org

Don Danmeier Glenn Kenes Nico March Steve Saarman Steve Weil, Esq. Legal Tyler Berding, JD, PhD John Garvic, Esq. Michael Hughes, Esq. Julia Hunting, JD, SE Kerry Mazzoni Alex Noland, Esq. Paul Windust, Esq. Recent Contributing Authors June 2013 Brian Kidney ECHO Maintenance Resource Panel Sandra Gottlieb, Esq. Alexander Noland, Esq. Tracy Neal, Esq. Stephanie Hayes, Esq. Richard Tippett Tyler Berding, JD, PhD David Levy, CPA July 2013 Anton Bayer, CFP Beth Grimm, Esq. Dave Phelps, ASLA, ISA Judy O’Shaughnessy Michael Petite August 2013 Julie Adamen Stan Malos, JD, PhD Sharon Glenn Pratt, Esq. John R. Schneider September 2013 Kevin Canty, Esq. Beth Grimm, Esq. Judy O’Shaughnessy Diane Rossi, PCAM, CCAM Steve Saarman October 2013 Beth Grimm, Esq. Debra A. Warren, PCAM, CCAM Richard Tippett Sharon Glenn Pratt, Esq. Geri Kennedy

NEW

at echo-ca.org

We’re adding new information to our website every day. Log in to read the articles below. If you need help logging in, find it on our website or email ECHO at newaccount@echo-ca.org.

Articles The New Davis-Stirling: Standardized Rules The new law clarifies the rules surrounding notice and delivery.

Educational Topic: Davis Stirling New The New Davis-Stirling: Annual Reports and Disclosures The annual budget mailing has become two separate documents with unique requirements.

Educational Topic: Davis Stirling New The New Davis-Stirling: Liens Recorded in Error Members are no longer responsible for the costs associated with liens recorded in error.

Educational Topic: Davis Stirling New Improving Security in Your Community Take specific steps to improve community safety, and know when to bring in professional help.

Educational Topic: Safety

Four Essential Elements of an Effective Security Assessment A professional security assessment will look at four main areas and try to answer a specific list of questions.

Educational Topic: Safety

Legislation 2013 Legislative Review Find out what happened with California bills addressing smoking, small association elections, common area, and more.

The Law Members who are logged in may now jump back and forth between the old and new versions of the Davis-Stirling Act. Log in and scroll down to the “Notes on the Text” within each section of law.

Find in: echo-ca.org/law

November 2013 | ECHO Journal 41

2013 legislative Overview

Enacted Bills Bill Information

Summary

SB 298 Watch

Contracts with Private Parking Enforcement

SB 510 Watch

Resident Surveys in Mobilehome Conversions

SB 745 Watch

New Davis-Stirling Clean-Up

SB 752 Watch

Davis-Stirling for Commercial CIDs

This region-specific bill authorizes the Orange County Board of Supervisors to contract for supplemental law enforcement services for homeowners’ associations to enforce Vehicle Code on the association’s owned and maintained roads. While this bill does not directly impact associations in other regions, it may lay the groundwork for future legislation.

This bill provides that a local agency is required to consider the results of a survey in making its decision to approve or reject a map related to the conversion of a rental mobilehome park to resident ownership.

This annual housing omnibus bill contains non-controversial provisions that clean up mistakes within the new Davis-Stirling Act, effective in January 2014.

This bill establishes a new body of law, separate from the Davis-Stirling Act, that governs exclusively commercial and industrial CIDs. Mixed commercial and residential associations are not affected.

Two-Year Bills Bill Information

Summary

AB 968 Support

Elections in Small Associations

AB 1360 Support if Amended

Electronic Voting in CIDs

SB 391

Document Recording Fees

This bill seeks to carve out specific exemptions for small associations from existing law governing CID elections. In certain cases, the bill would allow small CIDs to forego the mailing of ballots, and permit both nominations and voting at the election meeting. The size of a “small” association changed several times, and currently stands at 15 units. While the bill moved through the Legislature with bipartisan support, concerns from the Senate Housing and Transportation committee pushed the bill into a two-year process. ECHO is working with the author to refine the bill and address some lingering concerns.

This bill authorizes an association to conduct elections or other membership balloting by electronic voting. It also requires an association to provide each member with an opportunity to indicate that he or she will be voting electronically and to provide a member who did not indicate so with a paper ballot. ECHO is seeking additional clarification, including a definition of an “electronic balloting service provider.”

In order to fund affordable housing, this bill would impose a fee for all documents that must be recorded in California, including governing documents. This bill poses several concerns for associations. While it is dead for 2013, it may return in another form next year.

42 echo-ca.org

2013 legislative Overview (continued)

Unapproved Bills Bill Information

Summary

AB 126

Address Lists in Time-Shares This bill requires a time-share association to maintain a complete list of the names and postal addresses of all owners of time-share interests in the time-share plan and to update the list at least every 12 months. The bill did not meet legislative deadlines and is dead for this year.

AB 746

Smoking Ban in Multi-Family Dwellings This bill proposed to ban smoking in all multi-family dwellings in California. The sweeping nature of the legislation stirred up a predictable backlash, and the bill did not make it out of the Assembly Housing and Community Development committee. However, reconsideration was granted, and the bill may return in a new form next year.

AB 1205 Oppose Unless Amended

Mobilehome Residency Law Mediation Act

SB 125 Watch

Fire Prevention Fees

SB 750 Oppose Unless Amended

Mandatory Submetering

This bill would create a mediation program for alleged violations of the Mobilehome Residency Law, and would impose financial assessments to maintain the program. ECHO is seeking an amendment that would exempt mobilehome parks that are governed by the Davis-Stirling Act.

This bill exempts a property owner of a structure that is both within a state responsibility area and within the boundaries of a local fire district that provides fire protection services in the district from the payment of the fire prevention fee.

This bill deals with water sub-meters and meters. While the bill intended to address landlords and tenants, the language did not exempt common interest developments.

Learn More Don’t want to wait for the Journal to hear the latest news? We publish regular updates about HOA legislation on our website. Learn more about all the bills on our watch list, including those that don’t make the cut for the ECHO Journal. Find out more about ECHO’s activity, and what you can do to improve legislation for California HOAs. For all of this information and links to the text of each bill, visit ECHO’s HOA Advocacy pages at echo-ca.org/hoa-advocacy.

November 2013 | ECHO Journal 43