On April 5, Assemblywoman Julia Brownley changed an existing bill on summary judgments to one that restricts the collection of delinquent assessments. The modified bill raises the threshold for foreclosure from $1,800/12 months to $3,600/18 months.

Good Intentions. Ms. Brownley undoubtedly has good intentions–protecting financially stressed owners from foreclosure. Unfortunately, she is doing so at the expense of everyone else. If associations cannot collect delinquent assessments, their budgets will fall short. To compensate for the drop in revenues, boards have only two options, (i) delay much-needed repairs or (ii) raise dues to make up for lost revenue.

Law of Unintended Consequences. Boards already face threats of litigation from owners impacted by deferred maintenance. If they cut back on maintenance to avoid raising dues, damage from increased roof leaks and plumbing backups will result in expensive litigation and higher insurance premiums. If boards raise dues to pay for higher legal/insurance expenses or alternatively raise dues to avoid litigation, they risk pushing more owners into foreclosure/bankruptcy. Ms. Brownley’s good intentions will have the unintended consequence of actually increasing foreclosures.

Embarrassing Owners. Ms. Brownley did two more things I find troubling. She requires that payment plans for financially stressed owners be (i) negotiated with the entire board rather and (ii) approved in open session. Requiring a meeting with the full board instead of a representative will delay approval of plans since boards meet monthly and not everyone is always available. Moreover, the already embarrassed owner must explain to a panel of five or more neighbors (depending on the size of the board) why they cannot pay their bills. Finally, the payment plan must then be approved by the board in open session in front of even more neighbors. The embarrassment of the process may deter owners from seeking payment plans, thereby increasing foreclosures.

RECOMMENDATION. There are better ways to deal with this problem than pushing even more owners over a financial cliff and increasing the litigation risk to associations. I recommend contacting Assemblywoman Julia Brownley and politely asking her to withdraw AB 2502. In addition, use CLAC’s sample letter on your own letterhead and fax it to Assembly Housing Committee members, by close of business Tuesday (April 20) if you want to be listed as an opponent.

Sincerely yours,

Adrian Adams, Esq.
Adams Kessler PLC

QUESTION: I have an owner asking for a copy of the entire insurance policy. Is the association obligated to provide it?

ANSWER: Yes, the policy should be available for inspection and copying. Although insurance policies are not mentioned in the inspection provisions of the Davis-Stirling Act, they fall under the category of executed contracts not otherwise privileged under law. Civil Code 1365.2(a)(1)(D). In addition to inspection rights, associations are required to annually disclose information about insurance coverage.

Sincerely yours,

Adrian Adams, Esq.
Adams Kessler PLC

QUESTION: If the election procedures for an association indicate that the term of the board is one year, and then the board proceeds not to call an election in time for a new board to take office after that one year period, does the old board stay in power absent a new election? If so, what recourse do the owners have if there was no new election?

ANSWER: Yes, the board stays in power. If the board fails or refuses to hold an annual membership meeting within 15 months of the association’s last regular meeting, owners can bring an action against the board in superior court. In such cases, the court may summarily order the meeting. Corp. Code 7510(c).

Sincerely yours,

Adrian Adams, Esq.
Adams Kessler PLC

QUESTION: What is the proper method of calculating the required four days notice to members for board meetings?

ANSWER: Unless the governing documents require longer notice, members must be given notice of the time and place of board meetings at least four (4) days prior to the meeting. Civil Code 1363.05(f). If the board meeting is scheduled for 6:00 p.m. on Friday, notice should be posted by no later than 6:00 p.m. on Monday.

Calendar Days. Calendar days are used since the statute does not state business days. That means Saturdays and Sundays are counted. If the board’s meeting is on Thursday at 6:00 p.m., notice should be posted by no later than 6:00 p.m. Sunday. The statute does not exclude holidays, which means they are counted as well. If President’s Day, Martin Luther King Day or any other holiday happens to fall inside the four-day period, the holiday is counted as a normal calendar day.

Sincerely yours,

Adrian Adams, Esq.
Adams Kessler PLC

QUESTION: If there are multiple items to be discussed under a category on our agenda (e.g., the Monitoring Committee), do we have to list each individual item or can the agenda just show “Monitoring Committee”?

ANSWER: All items scheduled for discussion should be listed. If you plan to discuss and vote on particular issues, the membership needs to be alerted so they can attend. By itself, “Monitoring Committee” has no meaning. If the board plans to vote on the installation of security cameras in the common areas, listing that as an agenda item is much more meaningful.

Sincerely yours,

Adrian Adams, Esq.
Adams Kessler PLC

QUESTION: If it is not stated in the bylaws, does the association need to follow Robert’s Rules of Order?

ANSWER: Unless the governing document state otherwise, there is no requirement that board meetings operate under Robert’s Rules of Order or any other parliamentary procedure.

Membership Meetings. Annual and special meetings of the membership, however, must be conducted in accordance with a recognized system of parliamentary procedure. Civil Code 1363(d). Although Robert’s Rules of Order is the most widely used system, others may be used.

Sincerely yours,

Adrian Adams, Esq.
Adams Kessler PLC

QUESTION: In spite of the fact that we hold title as condo owners, insurance companies will not write “loss assessment” policies for us because our units are detached. Do we have another option?

ANSWER: A condominium is a condominium, whether attached or detached. Unfortunately, it is common for detached condominium units to be misidentified and for insurance agents to treat them as single family residences. The problem can be resolved by providing the agent with a copy of the CC&Rs showing the language identifying units as condominiums. If necessary, you can provide the condominium plan as well.

Sincerely yours,

Adrian Adams, Esq.
Adams Kessler PLC

QUESTION: Our president resigned. Does the vice president assume the presidency or just until a fifth person is brought onto the board and the board votes on a president?

ANSWER: The vice president becomes the acting president until such time as the board elects a new president. The board can select new officers at any time or it can wait until it adds a fifth director to the board.

Sincerely yours,

Adrian Adams, Esq.
Adams Kessler PLC

QUESTION: Our CC&Rs are silent on the issue of attorneys’ fees. To discourage lawsuits, should we amend our CC&Rs to allow the award of attorneys’ fees if a matter goes to litigation?

ANSWER: Attorneys’ fees clauses are double-edged swords. While the provision allows an association to recover legal fees, it often becomes the driving force behind litigation. For example, each side might spend $50-100,000 litigating a matter that has a disputed value of $12,000. When that happens, settlement becomes almost impossible. The plaintiff wants $12,000 in damages PLUS another $100,000 to cover his legal expenses. The defendant might agree to pay $7,000 to make the litigation go away but will never pay plaintiff’s legal fees (nor will the insurance carrier). That means each side will spend another $50-75,000 taking the matter to trial just to get a shot at recovering their legal fees.

Eliminating Fee Awards. If each side had to bear its own legal fees each time a matter was litigated, they would be forced to weigh the costs before jumping in. This would slow down the filing of lawsuits. Once in litigation, legal fees would also speed settlement since neither side wants to spend a non-recoverable $100,000 over a $12,000 dispute. Unfortunately, putting the brakes on litigation would require amending the Davis-Stirling Act. Currently Civil Code 1354(c) provides:

In an action to enforce the governing documents, the prevailing party shall be awarded reasonable attorney’s fees and costs.

It is unlikely the legislature will ever eliminate this provision, which means legal fees will continue to encourage litigation because plaintiffs always think they have a winning case and will recover legal fees. And, legal fees will continue to impede settlements when expenses spin out of control. It also means that owners who live in litigious associations will inevitably face higher dues for insurance premiums and potential special assessments for legal fees.

Sincerely yours,

Adrian Adams, Esq.
Adams Kessler PLC

QUESTION: Can owners be made to purchase H06 policies? Can docs be amended to include this requirement?

ANSWER: Yes, CC&Rs can be amended to require owners to carry insurance. The requirement can extend to tenants as well.

Renter’s Policy. Renters can be required to carry an HO4 policy which protects a tenant’s personal property against loss and limits exposure to personal liability claims. Protecting the tenant against loss protects the association.

Owner’s Policy. Owners should be required to carry an HO6 policy (”Homeowners 6″ or “Condominium Unit Owner Policy”). Without it, they are exposed to loss and are more likely to sue the association. Moreover, the secondary mortgage market is now requiring protection for owners. Owners’ insurance should cover the following:

1.  Personal Property Coverage that insures unit contents such as clothing and furniture.

2.  Personal Liability Protection which pays for bodily injury and property damage.

3.  Loss of Use Protection that pays for extra expenses (hotel, restaurants, etc.) while the owner’s home is uninhabitable because of damage.

4.  Loss Assessment Coverage that covers the owner’s portion of special assessments levied by the association resulting from insured losses.

5.  Real Property Coverage that insures those portions of the premises not insured by the association’s master policy.

RECOMMENDATION: Associations should amend their CC&Rs to require both owners and tenants to carry insurance. To avoid potential liability, the amendment should also relieve the association of enforcement requirements related to the amendment. In addition, boards should regularly publish reminders that owners and tenants need to carry their own insurance.

Sincerely yours,

Adrian Adams, Esq.
Adams Kessler PLC