Echo Journal - March/April 2020 by Echo

AT ECHO WE CARE

A POWERFUL TOOL

BANKRUPTCY RULING

East Bay Educational Seminar

Navigating Uncharted Waters Together

Internal Dispute Resolution

The Goudelock Decision

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SERVING HOA BOARD MEMBERS & HOMEOWNERS

MARCH / APRIL 2020

Community Associations in Crisis: Navigating COVID-19 at Your HOA PAGE 8

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DIRECTORS

David Hughes

Jerry L. Bowles

VICE PRESIDENT Adam Haney

Rolf Crocker Sarah Dunia John Gill, Esq.

TREASURER

Mark G. Guithues, Esq.

Karl Lofthouse

David Levy, CPA

SECRETARY Sandra Long

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Echo is the only statewide organization created solely for HOA board member and homeowner education in California. For more than 47 years, Echo has continued to be a leader in quality educational programs that build stronger communities.

Jacqueline Price The ECHO Journal is published bi-monthly by the Executive Council of Homeowners (ECHO). 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.

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ECHO journal | March/April 2020

You’re a volunteer. You deserve some help. Lead Conﬁdently. California laws governing homeowner associations constantly change and it’s tough to stay informed and educated. Echo helps more than 7,000 board members approach every board meeting with conﬁdence.

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Features 8

Community Associations in Crisis: Navigating COVID-19 in Your HOA

BY SANDRA LONG, CCAM, PCAM

Coronavirus & Community Associations

CONTRIBUTED BY SWEDELSONGOTTLIEB

Internal Dispute Resolution: A Powerful Problem-Solving Tool for HOA Boards

BY TIM FLANAGAN, ESQ.

Bankrupt Homeowners Can Stay and Not Pay Overdue Assessments

BY KATRINA SOLOMATINA, ESQ.

New Accounting Rules Change the Look of Association’s CPA Financial Statements

BY DAVID LEVY, CPA

Happenings

East Bay September Educational Seminar

Executive Director’s Message: Pandemic Precautions and Decision-Making for HOAs Facing Crisis & Uncertainty

BY DAVID ZEPPONI

At Echo We Care!

Peer Perspective: Conducting a Maintenance Tour

BY DON BEIL

The Self-Managed HOA: Getting the Most from Committees

BY JOHN CLIGNY, AMS, CAMEx, CCAM-HR

Legislative Review

Welcome to Our New Professional Members

Echo Bookstore Offerings

ECHO journal | March/April 2020

EXECUTIVE DIRECTOR’S MESSAGE

Raison d’Etre – The Reason for

What a beautiful phrase, raison d’etre (reason for being). I Pandemic Precautions and Decision-Making for every board member should consider and collectively agree HOAs Facing Crisis &The Uncertainty phrase engenders humanity. The words roll from one’s

stark business senses and adds the element of humanity t

With a well implemented plan, boards can The coronavirus pandemic has created a great a board: Strategic planning, execution and evaluation; mi save lives, protect the long-term interests of deal of concern and fear in American society. management. The business realities should the association, and conduct business… notbe as reflective of This is the time for boards, as leaders in the HOA usual… close to usualin asthe possible. Boards community, to consider the ramifications common of valuesbut ofasindividuals community. will be challenged to sift through and assess coronavirus (COVID-19) on their community. For Communities are imperfect – to because they are made of huma information, gauge risk the community, and HOAs, this could be a point of inflection whereby then put reasonable plans andliving. programs in place humans b the negative image of associations can be relating. Humans using. Human Basically, while maintaining best business practices and that manag forever improved if leadership at the community being human, communities sometimes forget complying with the law. level design programs and plans to keep the establish norms for a successful community. In a sense, t community safe and financially viable. It makes community. Itsinformation purpose is to establish order and elev At best, the about the new sense that communities develop plans tothe manage coronavirus is incomplete, and analysis this horrible situation and develop strategies to progress and pace by establishing normsis and constraints and based upon events and minimize community risk, financial risk and totobenefitretrospective all. statistics that have occurred in the past. Even look after those in your community who might the predictive epidemiological models are basedunderstand need help. It seems apparent that board leadership must upon previous behavior of similar viruses. This owners in order to orchestrate a sense of community and g makes it difficult to understand the risks specific Leadership is encouraged to draw upon a and protect community values. The purpose of a board, ther to the coronavirus and therefore many have heightened collective emotional intelligence build community based on common values for the good of sought to use a simple decision criterion of an and to manage the community wisely and “abundance of caution” in their plans and actions. appropriately to ensure the safety of its It takes time to orchestrate a community. It takes time to kno homeowners and the safety of their investment. time the voices and build a vision reflective of c Echo to is reviewing the various sources of If done right, the community will be better off to listen you will be more effective a board and sati information about the virusas and pursuingmember a and the board itself could be considered and an asset. measured response. This process of ascertaining Outstanding leadership can calm fears and build your reason for being on the board. what to do in a dynamic, emotionally-charged community during this heightened time of stress situation andto with a tidal wave of information is and resid and uncertainty. ECHO is committed helping homeowner boards the duty of–the board. Do the best d’etre”. ing and advocacy this is our “raison Continued on page 33

Sincerely,

David Zepponi Executive Director

ECHO EXECUTIVE DIRECTOR

March/April 2020 | ECHO journal

Members register at www.Echo-CA.org

FREE Access to Online Video Conferencing for HOA Board Meetings During the coronavirus isolation, you are not alone. Echo is working hard to build resources to assist you and your HOA during this difficult time. Members can log onto the Echo website and register for FREE Zoom video conferencing for HOA board meetings. Not an Echo member? Join today and have quick access to this easyto-use service that meets the meeting requirements in the California Civil Code. Look for solutions through the Echo We Care campaign. It was created because at Echo We Care about you!

ECHO journal | March/April 2020

COMMUNITY ASSOCIA IN CRISIS Navigating COVID-19 8

March/April 2020 | ECHO journal

IATIONS

9 at Your HOA

BY SANDRA LONG, CCAM, PCAM

Common interest developments throughout the world are facing the escalating coronavirus crisis and resulting disease, COVID-19. The threat of this pandemic has reached into communities in almost every county. Developments and updates from the Centers of Disease Control (CDC), the World Health Organization (WHO), California and local jurisdictions are occurring more frequently with guidelines, recommendations and now restrictions. Social-distancing has become a commonplace term and people are becoming more aware of the absolute need to limit contact and potential exposures, whether at schools, community centers, stores, gyms, businesses, churches, event venues or other locations that have people in close proximity. This is rapidly becoming a medical, financial and social problem as the world adjusts to this new, and hopefully, temporary way of life. To that end, it is critically important to consider the impact that COVID-19 will have on our common interest developments as it relates to board meetings, common area facilities and interactions between neighbors. Many homeowner associations have already been faced with the dilemma of how to hold board meetings under these conditions and to decide whether to keep common area amenities open during this current health crisis. Continued on page 10

ECHO journal | March/April 2020

Community Associations in Crisis Continued from page 9

BOARD MEETINGS/ASSOCIATION MEETINGS: Volunteer boards of directors for homeowners associations across California are faced with the predicament of how to handle the regular reoccurring meetings where association business is conducted. There are several options for consideration. Some homeowner associations may not have business to attend to and can postpone/reschedule their board meetings to a time several months out allowing the current crisis to dissipate. If this is not an option, the board of directors may want to consider holding the meeting via video conference or teleconference to minimize risk of exposure. (See page 7 for more information on this option). There are a few things that should be factored in if this is being 10

March/April 2020 | ECHO journal

considered. The teleconference and/or videoconference for any board meeting, special meeting, town hall meeting and/ or annual membership meeting must be readily available and completely accessible to the membership. Everyone should be able to hear the discussion and decisions of the volunteer board of directors. The dial/login information for the meeting to be held via teleconference or videoconference should be clearly posted with the meeting notice/ agenda. While it is preferred to have a physical location at or near to the association that homeowners can attend in person, this may not be a viable option considering the the protective guidelines for COVID-19. This temporary change should not be abused by the board of directors. All other requirements for a board meeting still apply

including: written meeting minutes and an Open Forum during which homeowners may speak to address the board. Inperson board meetings should resume as soon as possible, taking into consideration recommendations from the CDC and other governmental agencies in relation to groups of people having close contact. CONSTRUCTION PROJECTS:

For associations that have construction and/or other large projects currently in play, or in the very near future, it may be beneficial for the board of directors to appoint an Executive Committee to handle specific business between meetings. This Executive Committee needs to be formed through proper board vote at a duly scheduled and noticed meeting, with very clear guidelines, for the purpose

of the committee and clarifying any limitations. The executive committee must consist of fewer board members than constitutes a quorum. An example of a situation that would benefit from this would be a board of directors that appoints an Executive Committee to review construction project change orders presented between board meetings to allow uninterrupted business and project continuation without unnecessary delays. The decisions made by any Executive Committee outside of a board meeting must be ratified by a quorum of the board of directors at the next scheduled board meeting and noted in the official meeting minutes. COMMON AREA: Homeowners

Associations should take action without delay as it relates to sanitization for the common area. This includes providing hand sanitizing and disinfectant wipe stations in accessible locations including near common area doors, elevators, gyms, clubhouses, and trash rooms. Also, it is recommended that Associations consider increasing janitorial services for common areas in the short term to keep “high-touch” areas disinfected as often as possible. COMMON AREA AMENITIES: It may be necessary for Board of Directors to temporarily close common area “elective” amenities such as community gyms, clubhouses, swimming pools/spas, social rooms, etc., and to cancel/ reschedule Association-sponsored social events and other group activities. This is to help reduce potential exposure to illness and to assist with embracing the

recommended social distancing. Elevators, common area doors, trash rooms, lobbies, mailrooms, and parking areas should not be closed as these are required for access/operations. In terms of

particularly challenging time, there may be individual requests or even a broader request for the association to take care of the membership and to protect the community. Boards of

Boards of directors for common interest developments should lean on experts including legal counsel, management, insurance agents, Echo and other industry professionals for questions regarding recommended actions. limiting the use of common areas during this time, the restriction needs to be for everyone or for no one. It is not equitable to provide access for some and not for others as this would invite liability to the association. LIMITATIONS ON ACCESS: Some Associations may have considered the idea of limiting guests and visitors to the common areas in an effort to keep the community safe. It may be reasonable to limit visitor in the common area for the short term and to hold all deliveries in the front lobby if there is a process in place and space to accommodate this. It is very important to note that under no circumstances should a board of directors, or individual board member, question a homeowner, resident or guest as to their health or medical status. Such questioning is completely outside of the association’s jurisdiction and represents a substantial risk of litigation due to laws and regulations regarding medical privacy. During this unknown and

directors may feel that they are in a quandary on this as they naturally want to be able to help their community as much as possible. However, we do need to be mindful that the association does not take on responsibility for individual owners. Individual homeowners need to have personal responsibility. Boards of directors for common interest developments should lean on experts, including legal counsel, management, insurance agents, Echo and other industry professionals for questions regarding recommended actions or suspension(s) of operations.

How the Association Can Help the Community Boards could perhaps consider a bit of leniency in the short-term on assessment late fees, fines for non-compliance for non-urgent or non-life/safety violations, etc. in an effort to alleviate some of the challenges that the current situation presents for individual Continued on page 12 ECHO journal | March/April 2020

Community Associations in Crisis Continued from page 11

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members; be they fiscal, medical, or both. The key is for the board of directors to consistently apply rules, or waive them, across the entire membership and not pick and choose which to apply to whom. For example, it may be appropriate for an association to waive late fees on the monthly assessment for the next couple of months, as this current crisis has potential for wide reaching impact on individual health and finances. Another example would be to postpone any disciplinary hearings until such time that the CDC, or other governmental agencies, determine it is practical for gatherings/close contact. In the interim, it would be reasonable for an association to continue to send courtesy notices out for violations, or potential violations, on quiet hours, for example, and other infractions that cannot wait. Communication is key for a common interest development, more so in a time of uncertainty. Associations should communicate early and often on any new developments in terms of board meeting postponement, changes in the schedule or location, access, temporary amenity closures, and/ or increased janitorial services for the common areas. People want to feel included and be in the know of what is going on. It is recommended to keep communication positive and community-focused. Now, more than ever, homeowners in associations throughout the world and especially in California, need to work together, be mindful of each other, be a little more tolerant, a lot more patient, and be respectful of each other in the coming weeks. It is a time to be neighborly and to come

together as communities. It is a very important time for boards of directors to focus on the business at hand and to adjust operations as needed for the current conditions. Together, the crisis will be overcome. There is a choice for boards to lead communities and engage homeowners by being thoughtful and respectful. By doing this, boards will build a greater sense of community in their HOA and instill a lasting confidence in the ability to be resourceful and successful on the other side of this crisis. Sandra Long, CCAM, PCAM is Vice President of Operations at Associa Northern California. Sandra is an experienced industry professional, a frequent contributor at industry events and a volunteer member of the Echo Board of Directors.

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Coronavirus & Community Associations From the Community Association Attorneys at SwedelsonGottlieb

ith the quickly evolving concerns over coronavirus, SwedelsonGottlieb wants to assure boards that the health and safety of HOA communities is paramount to the firm. The State of California is in a state of emergency. Understandably, this causes panic Coronavirus 19 and anxiety for residents and Community Association Guidebook people want to know more about 3-12-2020 the coronavirus, and specifically what community associations should be doing. The important thing to do now is remain calm, informed and follow the advice of public health departments and the CDC. To help address the need for information and explain duties and responsibilities for community associations, SwedelsonGottlieb has prepared a guidebook for board and association use. Please feel free to share this guidebook because SwedelsonGottlieb believes providing the information to as many people as possible is of the utmost importance. It is important for all to remain vigilant about our own health and wellness, and to be patient and thoughtful of our neighbors, community and those affected by the coronavirus outbreak and those suffering from colds, flu and other illnesses. This issue may cause concern to many but the value of distributing good information to those potentially affected is tantamount to slowing the spread of the virus. SwedlesonGottlieb offers its deepest sympathies to those who have already been affected.

ECHO journal | March/April 2020

INTERNAL DISPU

A Powerful Problem-Solv When an owner requests an Internal Dispute Resolution (IDR) meeting with the board, the request is often met with animosity or concern. Usually, this is because the board has had prior run-ins with the owner and/or the board is concerned about a lawsuit. These reactions are understandable, however, if the board uses this as an opportunity and the IDR process is properly implemented, it can be an effective tool to resolve disputes. BY SANDRA L. GOTTLIEB, ESQ., CCAL

March/April 2020 | ECHO journal

Actions The Board Should Take for Successful IDR

UTE RESOLUTION

ving Tool for HOA Boards BY TIM FLANAGAN, ESQ.

IDR 101

Participate in Good Faith

IDR is a dispute resolution process where an owner and the association meet informally to discuss their dispute in an effort to resolve the dispute. The IDR process is outlined in Civil Code §§ 5900-5920. The process requires that: 1) The association must accept and participate in an owner’s request for IDR (but the owner can refuse the association’s request). 2) The association must designate a director to participate in the process. 3) The parties must meet promptly in a mutually convenient place and time to explain their positions; and 4) The parties must meet in good faith.

The board should participate and act on the IDR request in good faith. It may be difficult to participate in good faith, if the owner is a well-known complainer or trouble maker in the community. That being said, IDR will not be successful if there is not a good faith effort, so attempt to wipe the slate clean and go in with an open mind. One way to get over this hump is to select a board member who does not have any negative feelings towards the owner, or who has the least amount of animosity or “history” with the owner. Good faith listening and problem solving is a very powerful tool. The owner will recognize a good faith effort, and if the owner is serious about resolving the dispute, then the owner is much more likely to reciprocate making resolution more possible. Continued on page 16 ECHO journal | March/April 2020

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Only One Board Member Should Participate No matter how your board has handled past IDR requests, the Civil Code requires that the board appoint only one board member to participate in the IDR. Additionally, limiting the meeting to one board member and one owner makes the meeting less formal (as intended) and more likely to resolve the dispute (also as intended). In spite of the law and benefits, some boards do not want to participate in IDR because they do not want to relinquish control or they may be concerned about

March/April 2020 | ECHO journal

what the designated director might say or do. The way to handle these concerns is to have the whole board meet before the IDR, review the written request by the owner, discuss the matter and any potential resolution, and identify the board member best suited to participate in the IDR. Once the board member is selected, the board may or may not give that member authority to resolve the dispute. The board may instruct the participating board member to report back with any proposed settlement for the entire board to decide upon. Or, if the IDR concerns a monetary dispute, the board can give the member the authority to settle

up to a certain dollar amount. If the board handles the IDR in this manner, the concerns about bad resolutions will be reduced and the number of disputes that will be resolved will increase.

Use a Facilitator Having an owner or manager facilitate the IDR discussions will help drive a resolution to the dispute. The facilitator’s role is to take notes, follow up on issues that were brought up and try to focus in on matters where compromise seems likely. The facilitator should not take sides, and can also be the board member participant – if the board member participant is adept at handling these types of matters. At the outset of the IDR, the board member participant should explain that the parties are there to focus on the dispute and try in good faith to find a resolution. It is best practice to have the owner start by explaining their position and ideas for resolution. The board member should then explain the association’s position and ideas for resolution. Finally, the two sides

should engage in a dialogue to see whether compromises can be made to resolve the dispute. In some cases, the board should consider requesting that its attorney participate in the IDR to assist the board member in explaining the association’s legal position. The association should let the owner know in advance that its counsel will be present so that the owner can invite his or her attorney to attend. If the association does not have its counsel present, and the owner brings an attorney, it is recommended that the IDR be postponed so that the association can have its attorney present. It is a good practice for the association to ask the owner, in advance, whether they plan to bring an attorney.

Making IDR Successful The board should take every IDR request seriously, discuss the issue beforehand and enter into the process with an open mind. Also, the board member selected to represent the HOA must be familiar with all of the facts of the dispute, and, if authorized, be ready to enter into a settlement with the owner. The bottom line is, if used

properly, IDR can be an effective tool in resolving disputes. Tim Flanagan, Esq. is a Partner at the law firm of Berding | Weil, LLP in the San Diego office. Tim’s area of practice focuses on HOA corporate counsel and enforcement litigation. Outside of the office, Tim spends his time with his wife and two boys and a lot of time on the baseball diamond where he manages his son’s Little League team.

Act Promptly While the Civil Code does not define what “promptly” means, good practice would dictate that this means not waiting to respond for more than a week, or worse, until the next board meeting. The longer the board waits to respond to the owner’s request, the more likely the owner will become frustrated, which can hinder a resolution. The board can help with this step by adopting an IDR request form. The form should list blank “issues” to be discussed at the IDR so that the owner must think about the dispute and the issues. This will help streamline IDR, but also potentially eliminate red herring issues. The form should also have the owner indicate whether he or she will be bringing an attorney or a third party to the IDR meeting in order to avoid surprise. ECHO journal | March/April 2020

A PEER PERSPECTIVE

March/April 2020 | ECHO journal

BY DON BEIL HOMEOWNER & FORMER HOA BOARD MEMBER

CONDUCTING A MAINTENANCE TOUR

Oh, The Places We Will Go… Why Conduct a Maintenance Tour? A maintenance tour – far from a sentimental journey – is an opportunity for homeowners to visit and understand the workings of your HOA buildings that they have never previously realized existed or appreciated. At our HOA community, a 16-story building with 36 apartments, we have multiple rooms – like the boiler room and the fire protection room – which are never off limits, but which many homeowners have never stepped into, even though they walk past the doors to those rooms on a daily basis. A maintenance tour provides your residents with the opportunity to obtain a better understanding of your maintenance needs. By connecting the stops on your tour to past, current, and upcoming items in your reserve studies, you provide those on tour with an explanation of how their money has been, is being, and will be spent. This information will hopefully reflect well on thoughtful maintenance activity by a responsible board to ensure the upkeep of your property. Those attending the tour can also become advocates for board activity, for they see the impact of past spending and appreciate the significance associated with current and future spending.

Who Should Lead the Tour? We have an active maintenance committee, with all six members having served for the last five years on this group, which provides a wonderful consistency for our HOA. Both our residential building and a 6-story separate garage were constructed in 1929, so we find ourselves functioning in a continual maintenance mode, which we recognize is true for many of your HOAs, even those built in modern times. Any of those members can lead the tour, although in our situation it has always been the chair of that committee. If your HOA does not have a maintenance committee, consider establishing one, as it can be extremely helpful when maintenance obligations occur. Continued on page 20

ECHO journal | March/April 2020

Preparing for a Stop on the Tour: The Fire Protection Room The tour should be interesting, informative and move at a comfortable pace. Below is what we discussed on the tour of the fire protection room: Maintenance Services. We stress the importance of our fire protection services, including monthly, quarterly, semi-annual, annual, and 5-year testing and inspection. Standpipes. How the wet and dry standpipes function. Pull boxes. Note that our fire pull boxes raise an alarm that is local to our building because our 24/7 doorkeepers call the fire department when an alarm sounds. Residents unable to use fire stairs. Residents who cannot use the very narrow 90-year old fire stairs have asked that their names be posted in this room. In an emergency, fire department personnel can remove the list and visit each apartment listed to find individuals who have sheltered-in-place and help them safely leave the building. Fire stairs. In our building everyone knows where the fire stairs are located on their floors because the trash and recyclables are collected from that area. However, not everyone knows where the stairs end, because they do not end in a public location. So the tour walks down the last two flights of fire stairs so individuals know where they are when they arrive on the first floor. Fire inspections. Unannounced government fire inspections occur on a regular basis. The maintenance committee deals with correcting items needing attention such as emergency lighting, signage, removal of flammable material, etc.

Conducting a Maintenance Tour... Continued from page 19

Announcing the Tour Several days before the tour, which is normally scheduled for late morning on the weekend, we send an email notice to residents and post a notice in our lobby next to homeownersâ€™ mailboxes. Details of the date, day, time, tour leader, and meeting place are provided. In addition, an abbreviated list of the locations we will visit is provided so homeowners know how much walking is expected. Because several of the areas on our tour are at the top of our building, which is reachable only by stairs not the elevator, residents are informed that if they wish they 20

March/April 2020 | ECHO journal

will be able to sit at the bottom of the stairs and await others who venture upwards.

How Often are Tours Held and Who Attends? We have tours on an informal basis, but roughly once per year. We have approximately 50 people living in our building, and with 3-5 attending each tour, over a period of five years we have roughly 20 different people, or 40 percent of the residents, attending. The most recent tour was half new residents and half residents who had been in the building for over 20 years. The long-term residents indicated enjoyment of the tour, and at the same time were able to contribute a great deal based on their long-time residency.

What Happens On the Tour and What Topics Should Be Covered? In our building, our first stop is meeting in the lobby at the main elevator. Doing so allows us to talk first about: the extensive attention we pay on obtaining regular service of the elevators; how we deal with even the slightest elevator problem; and even what to do if individuals find themselves stuck in the elevator. We briefly discuss the minor damage on small black marble floor moulding on both sides of the main elevator door. Attention to elevator operations is certainly in our reserve study, however, fixing the marble is not, and even though people walk by every day they do not notice the problem of the broken moulding. Starting with these two items – one very serious and one not very serious – shows attendees that the committee and board are fully attentive to their safety as a primary concern, but is also attentive to smaller items that can be repaired as part of ongoing maintenance. We have a wooden floor in our main elevator which is in line for refinishing. This provides an opportunity to discuss why some repairs are so expensive. Although it might be tempting to refinish the floors in the simplest possible way, elevator codes are very restrictive about who can perform any work on elevators. While your HOA may not have elevators, there will no doubt be restrictions on other areas – a common example would be the pool area. These areas provide an opportunity to discuss the complexities of performing some maintenance tasks. Working with your building manager, if you are managed, or speaking with vendors at ECHO presentations, are excellent ways to increase your knowledge of how to obtain needed improvements properly without violating codes or other restrictions. At that first stop we distribute a two-page

handout that lists locations we will visit on the tour. For each location we include a list of two to ten topics that we want to cover about each tour stop. Completing the tour takes about one to two hours depending on length of the discussion at each stop and the number of questions. Because we are discussing attendees’ homes, typically of interest, it is unusual for anyone to leave the tour before it is completed. Our HOA has an extensive, active maintenance program. At each stop on the tour we discuss the function of the items visited, the completion of past maintenance and plans for future work.

Conclusion After conducting a tour, ask members of the community who participated to attend the next board meeting and give a brief summary of what they learned. Their comments should reflect well on the board. Thus, it is important to properly plan and conduct the tour. Done right, the board should be praised in the reports for fiscal responsibility and a refreshing level of transparency. A tour will help establish a sense of trust and confidence in the decisions the board makes. Oh, the places we’ll go and the knowledge we’ll gain on a properly developed and executed maintenance tour program. It just makes good sense. Don Beil is a former four-year HOA board member and current five-year maintenance committee chair of a high-rise condominium community in Oakland. He has 46 years of experience as a teacher, primarily teaching computer science at the university level to deaf students. He loves to write and has published widely. He can be reached through the ECHO office. �- ---

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Echo Members: Download a free copy of a Sample Maintenance Manual for Community Associations from the Echo online bookstore!

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Non-Members: $15 ECHO journal | March/April 2020

THE SELF-MANAGED HOA

Getting the Most from Committees

omeowner association boards of directors have a love/hate relationship with committees. I often hear from board members that committees or committee members are “out of control” or have “gone rogue.” This means a committee has strayed from their charter and authority. Sometimes a committee has simply lost relevance or outlived their original intent. If used correctly, committees can be an indispensable tool for boards to facilitate information gathering, decision making and overall good community governance. A robust committee structure also allows the board and community members to encourage volunteerism, evaluate leadership and develop a pool of potential board members. As Merriam Webster says, a committee is “a body of persons delegated to consider, investigate, take action on, or report on some matter; an advisory committee.” If we stick to the formal definition of a committee, we see that there is some specific language that will both inform boards’ views of committees and encourage their use for strategic and meaningful work in our community associations. The Common Interest Open Meeting Act (Civil Code §§4900-4955) regulates how

March/April 2020 | ECHO journal

BY JOHN CLIGNY, AMS, CAMEx, CCAM-HR

appoint members to serve on these committees. Standing committees of the board are permanent committees formed by the board to consider, investigate, act on, or report to the board on a specific area of concern that has continued and community-wide relevance. Examples of standing committees can be a finance committee, a social committee, a landscape committee or a community safety and security committee. Ad hoc committees are temporary committees formed by the board for a specific task or objective and dissolved after the completion of the task or purpose. Examples of ad hoc committees can be a painting committee, a budget committee, a governing document revision committee or a special project committee. Executive committees are composed entirely of board members (at least two) who serve at the discretion of the board. Boards may delegate authority to executive committees who act on the board’s behalf in specific matters. The use of an executive committee can be an effective

homeowner association boards meet and conduct association business. The active formation and use of committees can help boards expedite research and information gathering that can inform board decisions during open meetings, creating more efficient and effective governance for associations. There are four types of committees that association boards can create to expedite decision making and delegate board duties: 1) mandatory committees required by the governing documents, 2) standing committees of the board, 3) ad hoc committees of the board, and 4) executive committees. Mandatory committees required by the governing documents will be identified in the CC&Rs and bylaws. They may state that the board “shall” appoint an Architectural Design and Review Committee or a Nominating Committee. The formation and appointment of these committees is not an option the board can choose to exercise if needed. These committees are a requirement of association governance, and the board must take steps to

Continued on page 24

Critical Factors for the Formation and Effective Use of Committees • Before appointing a committee or soliciting volunteers, develop and establish a formal committee charter. No matter what type of committee you are appointing, this is the critical first step. The committee charter is a written document that details the committee name, type, its purpose, its responsibilities, term, number of members, how members are selected, how the committee is organized, its relationship to the board of directors, its relationship to community management and its meeting and reporting requirements.

• Be sure to understand what the statutory requirements are for the committee you are appointing and communicate them clearly to the committee chair and committee members. If the committee has decision making and spending authority, it may be required to comply with

the open meeting act. Committees who provide advisory services to the board and report on their activities during open meetings of the board are not required to comply. Warning – if a quorum of board members serves on any committee, the meetings of that committee are construed as a board meeting and must comply with all facets of the open meeting act.

• To encourage transparency and avoid misconceptions of committee purposes and authority, add a standing agenda item for Committee Reports on public board meeting agendas. List the active committees and be sure to allocate enough time for adequate reports and board member follow up.

• Review all committee charters annually, and don’t be afraid to decommission a non-performing committee or a committee that has lost its purpose or relevance.

ECHO journal | March/April 2020

effective way to support boards and owners. A robust committee structure informs and speeds board decision making and maximizes productivity during board meetings and enhances community governance.

The Self-Managed HOA Continued from page 23

way for a board to deal with compensation or personnel issues, litigation matters, and executive meeting agendas. An executive committee can also isolate rogue board member(s) or members who openly breach board confidentiality. Helpful tip â€“ an

executive committee composed of less than a quorum of directors is exempt from the requirements of the open meeting act. With the increasing scrutiny of homeowner association board meetings and the tendency of the State Legislature to increase homeowner association regulation, committees can be an

John Cligny, CAMEx, CCAM-HR, AMS, is the co-founder of Association Consulting Group and is a veteran portfolio manager and industry thought leader. John advises and educates HOA clients and management companies on a wide range of community management topics and provides expert testimony in litigation.

Echo membership benefits you and your HOA. Join today! OUR MISSION STATEMENT Fostering a better quality of life in community associations through education, advocacy and networking.

For more information visit www.echo-ca.org 24

March/April 2020 | ECHO journal

Bankrupt Homeowners Can Stay and Not Pay Overdue Assessments How the Goudelock Decision will Affect HOAs and the Owners Who File for Bankruptcy BY KATRINA SOLOMATINA, ESQ.

he Ninth Circuit Court of Appeals has recently issued an opinion that will impact condominium and home owners who file for bankruptcy. The decision has changed the bankruptcy law making it more difficult to collect assessments from a homeowner who has declared bankruptcy under Chapter 13. The Ninth Circuit Court of Appeals has held that HOA assessments that come due after a Chapter 13 case has been filed are discharged at the conclusion of the case. This decision means that there will be new burdens on management companies, attorneys and debt collectors to assure that associations do not attempt to collect future assessments when an owner has obtained a discharge in a Chapter 13 bankruptcy. Individuals who file for Chapter 13 bankruptcy typically earn a healthy wage which allows them to reorganize their debts and pay back a portion of their debt to creditors. A reorganization plan usually runs from three to five years. Whereas, Chapter 13 filings allow for reorganizations, a Chapter 7 bankruptcy, usually requires an immediate discharge of debt without paying creditors. In 1994, Congress reformed the bankruptcy code

to make it clear that owners who file a Chapter 7 bankruptcy must pay assessments that come due after the filing of the petition in bankruptcy. Congress failed, however, to clarify if that obligation extends to owners who file under Chapter 13. In the recent ruling of Goudelock v. Sixty-01 Ass’n of Apartment Owners, 895 F.3d 633 (9th Cir. 2018) (“Goudelock”) the Ninth Circuit court made it clear that if a condominium or home owner files for a Chapter 13 bankruptcy in Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon or Washington, their debts will be discharged and creditors will be left holding the bag. This decision will certainly impact how and when an HOA enforces its lien and will certainly cause owners to reconsider (i) whether they should pay their post-petition debts to the HOA or (ii) whether they should reside rent free and assessment free while they go through foreclosure proceedings.

The Goudelock Decision Penny Goudelock purchased a condo unit in 2001 in Redmond, Washington. Her deed was subject Continued on page 26 ECHO journal | March/April 2020

Bankrupt Homeowners Can Stay... Continued from page 25

to a declaration of covenants and restrictions which provides, among other things, that Sixty-01, a condo association, may charge property owners’ assessments for monthly fees and for maintenance, repairs and capital improvements. It also states that unpaid assessments and costs and reasonable attorneys’ fees incurred in collection of the debt will create a lien on the property. In 2009, Ms. Goudelock stopped paying her condominium association payments and Sixty-01 initiated foreclosure proceedings. In March of 2011, Ms. Goudelock moved out of her condominium and filed a petition in bankruptcy under Chapter 13. At around the same time she moved to Seattle, and a few months later she had a plan confirmed whereby she agreed to surrender her home. Sixty-01 filed a proof of claim for $18,780.35 for unpaid pre-petition assessments and noted that the assessments continued to accrue at $388.46 per month. The condo unit sat unoccupied until the mortgage lender foreclosed on the property in February 2015. Ms. Goudelock successfully completed her reorganization plan in July 2015 and received a discharge. Meanwhile, in April 2015, Sixty-01 petitioned the Bankruptcy Court for a determination that the dues accumulated after Ms. Goudelock filed for Chapter 13 should not be discharged and that they constituted a personal obligation of Ms. Goudelock. The Ninth Circuit ruling said that Penny D. Goudelock could discharge more than $18,000 in fees that accumulated on her Redmond, Washington condo 26

March/April 2020 | ECHO journal

The decision in Goudelock means that if an owner receives a discharge in a Chapter 13 bankruptcy case filed in Washington, Oregon, Alaska, Arizona, California, Hawaii, Idaho, Montana, or Nevada, that owner is not personally obligated to pay any post-petition assessments. after she filed her bankruptcy case and before her mortgage lender foreclosed on the home. The Ninth Circuit said the obligation to pay the fees arises when a property is purchased, and the ongoing monthly assessments are simply a contingent or unmatured form of debt.

How Does this Ruling Affect the Owner? Prior to this ruling, homeowners in Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon or Washington were held personally responsible for any accrual of HOA dues or assessments, even if they no longer lived in the unit, until such time as they no longer held title to the property. Under the

ruling in Goudelock, it is highly likely that owners will reconsider paying post-petition liens while they make their payments under the plan. If they elect to keep the property, they can simply bring the debts current before the HOA forecloses. While they decide whether to keep the property or not, they reside rent free and assessment free. Notably, the internet is full of attorney advertisements advising clients to come see them before making any post-petition payments.

What Does this Ruling Mean for a Homeowners Association? Community association documents and state legislation often contain provisions that state that the owner of a property may not exempt himself from liability for his contribution to the common expenses by waiving or disclaiming his rights or enjoyment of common areas, or by abandoning the relevant property. Courts have generally upheld these provisions. The decision in Goudelock ignores these rulings. The decision in Goudelock means that if an owner receives a discharge in a Chapter 13 bankruptcy case filed in Washington, Oregon, Alaska, Arizona, California, Hawaii, Idaho, Montana, or Nevada, that owner is not personally obligated to pay any post-petition assessments. Unfortunately, any attempt to request payment of assessments from an owner during a Chapter 13 bankruptcy case is likely a violation of the automatic bankruptcy stay, and any attempt to do so after the owner receives a discharge will now be a violation of the Chapter 13 bankruptcy discharge injunction. If a notice of

Chapter 13 bankruptcy is received, it is crucial that the association and its managing agent appropriately flag or note the file to ensure that all statements and notices are reviewed carefully by counsel for demands or language that could violate federal law. Questions also arise as to whether an association can enforce other covenants contained in its governing documents. If the owner is no longer obligated to pay assessments, are they obligated, post-petition, to submit all architectural plans for approval? Can they ignore pet restrictions or short-term rental restrictions? Does the HOA have to obtain relief from stay to enforce any covenant in the governing documents after the offending owner files a Chapter 13 petition?

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Bankrupt Homeowners Can Stay Continued from page 27

And finally, volunteer HOA boards are typically loath to foreclose, own and maintain property. This decision will certainly change that viewpoint! Associations will have no choice but to seek relief from the automatic stay and foreclose as quickly as possible.

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Conclusion

The Legislative Session Continues! For the most up-to-date information, visit the HOA Advocacy section at the ECHO website: www.echo-ca.org/hoa-advocacy 2020 is the second and final year of this legislative session. The list below contains new bills introduced this year. This list, and the impact of each bill, will change as authors amend the language in these bills and others.

SUMMARY: Within a very high fire severity zone, would require an association to allow an owner to use at least one type of fire retardant roof covering material that meets certain requirements as defined in the section and in the International Building Code.

Current Legislation

SB 969 AUTHOR: Wieckowski SUBJECT: Association Elections STATUS: In Senate Housing POSITION: Watch SUMMARY: Includes among

AB 2227 AUTHOR: Irwin SUBJECT: FDIC & Fidelity Bond

Coverage STATUS: Introduced POSITION: Watch SUMMARY: Would require that association funds transfers greater than $10,000 receive prior written approval from the board of directors, that association funds shall be deposited in an institution insured by the FDIC, and that the association maintains certain types and levels of coverage for its directors, officers, and employees. SB 182 AUTHOR: Jackson SUBJECT: Fire Retardant Roofs STATUS: Passed Senate. In

Assembly.

POSITION: Watch

March/April 2020 | ECHO journal

the permissible reasons for disqualifying a person from nomination as a member of a Board of Directors of a common interest development, if the person has served the maximum number of terms or sequential terms allowed by the association. Requires additional persons to be appointed and overseen by the Inspectors of Election to also satisfy the criteria of who may be an independent third party.

There is a substantial period of time between the filing of the Chapter 13 bankruptcy petition and discharge of the debtor. Apart from statutory deadlines, it is commonplace for plans to be proposed, amended, withdrawn and for numerous confirmation hearings to be held, resulting in months long delays before a plan is confirmed, if ever. Absent a change in the bankruptcy code, during that period of time, property owners will enjoy all the benefits of home ownership without all of the burdens. While the debtor’s life was made simpler by this decision, other lives were complicated. This ruling will certainly lead to increased litigation between lenders and HOAs as they struggle to determine who will assume the owners’ burdens and an increase in the price (and availability) of condominium mortgage loans.

Katrina Solomatina, Esq. is an associate attorney at the law firm of Hopkins & Carley in San Jose. Her practice focuses on commercial real estate transactions and community association law. Katrina also serves on Echo’s volunteer board of directors.

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Find all of ECHO’s Professional Members Online. Visit the Professional Service Provider Directory at www.echo-ca.org

ECHO journal | March/April 2020

New Accounting Rules Change the Look of Association’s CPA Financial Statements BY DAVID LEVY, CPA

o help ensure that all CPA-prepared financial statements report revenues the same way (regardless of the type of organization or industry), new presentation rules (FASB ASC 606) are required for association year ends beginning with December 31, 2019. This new accounting standard, set forth by the Financial Accounting Standards Board (FASB), must be followed by all Certified Public Accountants (CPAs) when they render reports (reviews and audits) in accordance with Generally Accepted Accounting Principles (GAAP). California law, Civil Code § 5305, requires at least an annual [CPA] review in accordance with GAAP if gross income (billed assessments and other income) exceeds $75,000 in any year, unless the association’s governing documents impose a more stringent standard (i.e. an audit). The new standard (1) observes the long-held accounting principle of matching revenues with expenses in the same time period by limiting the recognition of reserve assessment revenue to the total of reserve expenditures, and (2) applies to organizations that provide goods and services to persons who are obligated to pay for them [i.e. association members who buy into a common interest development and must pay assessments pursuant to the CC&Rs].

OLD GAAP INCOME STATEMENT $ 200

NEW GAAP INCOME STATEMENT

$ 500

$ 100

$ 250

$ -0-

$ -0Reserve Assets

$ -50 Reserve Revenues

The new accounting standard moves some replacement reserve activity from the income statement to the balance sheet. Generally, the replacement reserve assessments will be adjusted (up or down) to offset actual reserve expenses, and the replacement reserve net income (loss) will be zero. The reserve fund balance will also be zero. The replacement reserve column of the balance sheet will generally show asset dollars equal to liability dollars. As replacement reserves are funded from assessments, asset dollars will increase, as will the related obligation for making major repairs in the future. Similarly, as such major repairs are made, the asset dollars and related liability will decrease by the same amount. Generally, the association’s management company DOES NOT have to comply with this new presentation standard when preparing monthly financial statements. Failure to comply with this accounting standard in the year-end CPA reviewed/audited financial statements distributed to owners could have negative legal and/or financial consequences for the association.

Reserve Expenses

March/April 2020 | ECHO journal

Old GAAP Income Statement

Reserve Income (Loss)

New GAAP Balance Sheet

Funded Reserve Liability

Reserve Fund Balance

OLD GAAP BALANCE SHEET

OLD GAAP FINANCIAL STATEMENT PRESENTATION FORMAT EXAMPLE 1

$ 500 Existing Financial Statement Presentation Format (Scenario 1)

$ 250

Balance Sheet

$ -0Reserve Assets

Funded Reserve Liability

Reserve Fund Balance

NEW GAAP BALANCE SHEET Old GAAP Balance Sheet $ 500

Assets Cash and investments Assessments receivable Prepaid insurance Other assets Total assets

Operations Fund

20,000 5,000 3,000 2,000 30,000

Replacement Fund

80,000

Total Funds

100,000 5,000 3,000 2,000 110,000

Liabilities and fund balances Accounts payable Assessments paid in advance Contract liabilities – replacement reserve assessments received in advance Other liabilities Total liabilities

5,000 15,000

0 5,000 15,000

Fund balances

15,000

80,000

95,000

Total liabilities and fund balances

30,000

80,000

110,000

60,000

20,000 2,000

80,000 2,000 1,000 4,000 87,000

6,000 4,000

6,000 4,000 0

Income Statement Revenues Assessments Interest income Recovery of uncollectible accounts Other income Total revenues

$ 250

$ -0Reserve Assets

Funded Reserve Liability

Reserve Fund Balance

New GAAP Balance Sheet

The following simplified example illustrates the basic change in presentation for CPA-prepared year-end financial statements prepared in accordance with this new accounting standard: EXAMPLE 1: REPLACEMENT RESERVE ASSESSMENTS ARE GREATER THAN MAJOR REPAIR EXPENDITURES

In Example 1, billed (budgeted) replacement reserve assessment revenues are $20,000, reported replacement reserve assessment revenues are $5,000 ($7,000 major repair expenditures less $2,000 reserve interest income), actual major repair expenditures were $7,000, and cumulative deferred assessment revenues, aka “contract liabilities,” were $80,000. Billed (budgeted) replacement reserve revenues ($22,000) greater than major repair expenditures

Expenses Management Insurance Utilities Landscape maintenance Major repairs and replacements Other facilities maintenance Other expenses Total expenses

1,000 4,000 65,000

7,000

5,000 3,000 14,000 10,000 7,000 22,000 6,000 67,000

5,000

15,000

20,000

Fund balance, beginning of year

10,000

65,000

75,000

Fund balance, end of year

15,000

80,000

95,000

Income (loss)

5,000 3,000 14,000 10,000

22,000

22,000 6,000 60,000

7,000

($7,000) of $15,000, are included in contract liabilities – hence, there is a reported net income of zero. While the foregoing change in format will take some getting use to, there is a certain degree of logic, even for homeowner associations. Under existing commonly-presented fund accounting, reserve assessment income is based on the approved annual budget (and is usually the same or an increasing amount from year to year) while reserve expenses (actual expenditures) are generally reported on a cash basis and can vary significantly from one year to the next – resulting in equally great fluctuations Continued on page 32

ECHO journal | March/April 2020

Under the new standard, on the income and expense statement, the reserve assessment income will generally be adjusted up or down so that net reserve income (expense) is zero. The year-end CPA reviewed (or audited) financial statements will contain a footnote disclosure which shows the The following is one possible reconciliation reader the difference between the reserve assessment income in the annual budget report and that presented in the year-end (CPA) financial statements. format:

New Accounting Rules Continued from page 31

in net reserve income or loss from one year to the next. Such unpredictable changes may make it more difficult for the reader (the typical non-accountant homeowner) to reconcile information presented in the annual budget report that appears in the yearend financial statements.

The following is one possible reconciliation format … Operations Fund

Assessment revenues per budget

273,020

Replacement Fund

Total Funds

140,980

414,000

(10,812)

Effects of applying the new guidance Reclassify interfund transfers

Reclassify unrealized gains (losses)

2,137

Adjust revenues to equal expenses

219,635

210,960

351,940

624,960

Total effects of new guidance

Assessment revenues per financial statements

NEW GAAP FINANCIAL STATEMENT PRESENTATION FORMAT EXAMPLE 1

Under the new presentation format, on the balance sheet, the amount of reserve assets (cash and other investments) willthe generally the “contract liability replacementand reserve assessments Under newequal standard, on the –income paid in advance” in the replacement fund (reserve) column of the financial statements. When reserve expense funds are expended for major the repairsreserve and replacements the balance income in the liability will statement, assessment decrease by the same amount of cash and investments.

will generally be adjusted up or down so that net

New Financial Statement Presentation Format (Scenario 1)

Balance Sheet Assets Cash and investments Assessments receivable Prepaid insurance Other assets Total assets

Operations Fund

20,000 5,000 3,000 2,000 30,000

Replacement Fund

80,000

Total Funds

100,000 5,000 3,000 2,000 110,000

Liabilities and fund balances Accounts payable Assessments paid in advance Contract liabilities – replacement reserve assessments received in advance Other liabilities Total liabilities

5,000 15,000

Fund balances

15,000

Total liabilities and fund balances

30,000

80,000

110,000

60,000

5,000 2,000

65,000 2,000 1,000 4,000 72,000

6,000 4,000

6,000 4,000 80,000 80,000

80,000 5,000 95,000

Income Statement Revenues Assessments Interest income Recovery of uncollectible accounts Other income Total revenues Expenses Management Insurance Utilities Landscape maintenance Major repairs and replacements Other facilities maintenance Other expenses Total expenses Income (loss)

1,000 4,000 65,000 5,000 3,000 14,000 10,000 22,000 6,000 60,000

273,020

7,000

7,000 7,000

5,000 3,000 14,000 10,000 7,000 22,000 6,000 67,000

5,000

Fund balance, beginning of year

10,000

Fund balance, end of year

15,000

It is important to keep in mind though, that, in most instances, the “contract liability – reserve income (expense) is zero. replacement reserve assessments paid in advance” will The NOT year-end equal the reserve liability reported in the reserve study, the annual budget report or the CPA’s supplemental information CPA reviewed (or audited) financial statements accompanying the annual review or audit.

will contain a footnote disclosure which shows

As this new accounting standard is implemented in 2020 there will undoubtedly be some challenges. tuned. the difference between the reserve theStay reader John Bellitto, CPAannual David Levy, CPAreport assessment income in the budget Allen & Cook, Inc Levy, Erlanger & Company LLP and that presented in the year-end (CPA) San Jose San Francisco financial statements. Under the new presentation format, on the balance sheet, the amount of reserve assets (cash and other investments) will generally equal the “contract liability – replacement reserve assessments paid in advance” in the replacement fund (reserve) column of the financial statements. When reserve funds are expended for major repairs and replacements the balance in the liability will decrease by the same amount of cash and investments. It is important to keep in mind though, that, in most instances, the “contract liability – replacement reserve assessments paid in advance” will NOT equal the reserve liability reported in the reserve study, the annual budget report or the CPA’s supplemental information accompanying the annual review or audit. As this new accounting standard is implemented in 2020 there will undoubtedly be some challenges. Stay tuned.

David Levy, MBA, CPA is the founder and managing partner of Levy, Erlanger & Company, LLP which provides audit, review, tax, consulting and expert witness services to more than 2,000 homeowner associations throughout Northern California. David is a long time member and past Treasurer of the Echo board of directors and is the co-author of the Condominium Green Book. 32

March/April 2020 | ECHO journal

Executive Director’s Message Continued from page 6

you can, with the information you have, from the most respected and credible sources. Dr. John Kindt, formerly with of the University of Illinois, taught a basic model to be applied when collecting and sorting through information to make reasonable business decisions. His approach is to view information/data from the following lenses. Is the information: 1. Authoritative (does the information come from an expert or direct observation). 2. Relevant (is the information timely and is there a good relationship between the information/data presented and the decision to be made), and; 3. Credible (is the information truthful or is it used inappropriately to make a point?). The A.R.C. model includes one final, important philosophical overlay: Is it the right thing to do and consistent with the community’s values?

In a period of uncertainty, the A.R.C. model is particularly helpful as it drives decisions to be more measured and objective. Leaders are often required to make decisions with incomplete and uncertain information. Great leaders find a way to overcome the haze and courageously make decisions from the best information available. Applying the A.R.C. model is a way to fairly and objectively sift through and weigh information and fill in the gaps so that boards can lead wisely and courageously. Together strong leadership will overcome the challenges brought on by coronavirus and will build the respect of the community and the confidence members have in the board decisions. Stay safe.

Visit the Echo website for updated event dates. www.echo-ca.org

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ECHO journal | March/April 2020

The ECHO Bookstore is your source for valuable information on the duties of HOA board members. Find these and other informative publications, including FREE downloads, online at www.echo-ca.org.

MEMBERS: To order, log in for your member pricing through the Online Store at echo-ca.org or call (408) 297-3246

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