Enjoy!

This year SB 741 was proposed and approved by the California Legislature.  This bill revised and added various provisions to the Proprietary Security Services Act set forth in the California Business and Professions Code.  The effect of these changes is as follows:

1. Proprietary Private Security Employers must register with the Department of Consumer Affairs.
2. Proprietary Private Security Officers must register with the Department of Consumer Affairs.
3. Proprietary Private Security Officers must complete training in security officer skills within six (6) months of the date registration is issued or within six (6) months of employment by a proprietary private security employer.

A proprietary private security employer is defined in the new law to include persons or entities who have one or more employees who provide security services for the employer and only for the employer.  Unfortunately the new laws do not define what constitutes “security services,” but these arguably include many services provided by “security guards” or “patrols” at an association.  Chances are that if your association hires anyone who arguably provides any security-type services exclusively for your association, it will be considered a proprietary private security employer.

A proprietary private security officer is defined in the new law as an unarmed individual who:

1. Is employed exclusively by any one employer
2. Has a primary duty is to provide security services for his or her employer
3. Provides services not contracted to any other entity or person
4. Is not exempt under Section 7582.2 (various exceptions)
5. Is required to wear a distinctive uniform identifying the person as a security officer
6. Is likely to interact with the public while performing duties

A proprietary private security employer is required to register and pay a $75 registration fee.  The registration lasts for two years and can be renewed thereafter at a cost of $35.  In addition to registering, proprietary private security employers must also:

1. Maintain an accurate and current record of the name, address, commencing date of employment and position of each proprietary private security officer and the date of termination of employment if terminated.
2. Maintain an accurate and current record of proof of completion by the officer of the required training and an archive of such training for at least two years.

A proprietary private security officer is required to register and pay a $50 registration fee.  The registration lasts for two years and can be renewed for a cost of $35.  The proprietary private security  officer must also:

1. Complete an approved training course within six months of registration being issued or within six months of employment with a proprietary private security employer.
2. Carry with them while on duty a valid and current proprietary private security officer registration card or a hard copy printout of the bureau’s approval form and a valid driver’s license or government issued ID card.

The penalties for not complying with these requirements for proprietary private security officers includes fines between $250 and $1000 and, depending on the circumstances, could include additional penalties.

While these new laws do not apply to associations who contract with outside sources for their security patrols, if your association directly employs any security officers, steps should be taken in the year 2010 to ensure compliance when these new laws become effective on January 1, 2011.  If your association needs assistance, please feel free to contact our office.

CAI FAQ - HA Condominium Guidelines

On Friday, November 6, 2009, the Federal Housing Administration (FHA) issued two documents related to FHA mortgage insurance requirements for condominium associations. These two documents: HUD Mortgagee Letter 2009-46A and Mortgagee Letter 2009-46B provide an overview of the FHA proposed transitional criteria and successor criteria for condominium association requirements for FHA mortgage insurance. For a full summary of the new requirements, please click here.

What is FHA Mortgage Insurance?

FHA mortgage insurance is a policy that protects lenders against some or most of the losses on a mortgage if the borrower defaults on the mortgage. FHA insurance is typically required on mortgages where there is less than a 20 percent down payment. The insurance is funded by a fee on the overall mortgage amount and a small annual levy on the loan amount.

FHA insurance is important, as it provides a mechanism to recover losses associated with default and ensures a continuing flow of money into the mortgage markets.

Why Should My Association Care about the FHA Requirements?

This is an issue of interest for condominium associations as FHA insured mortgages are playing an increasingly important role as a financing mechanism for those seeking to purchase condominium units. While traditionally, FHA-insured mortgages played a small role in the housing markets (approximately 5 percent in 2007), that number has increased to roughly 20 percent of mortgage originations in 2008.

As lenders continue to reexamine and tighten lending criteria, qualifying for FHA mortgage insurance provides potential buyers with an additional financing option and, thus, makes units in your condominium association marketable to a larger pool of potential buyers.

How Does the FHA Approval Process Work?

Typically a lender processes the paperwork associated with meeting FHA requirements. For new developments, developers may also work with FHA to have their project pre-qualified for FHA financing.

In processing the paperwork to qualify for FHA approval, lenders will seek information required by the FHA from a condominium association. Condominium associations may also be able to work directly with the FHA to qualify for financing.

Once a project qualifies for FHA mortgage insurance, FHA may insure mortgages for buyers in a condominium up to a certain percentage of units.

What FHA Criteria Apply to Condominium Associations?

The FHA mortgagee letters outline criteria that lenders or FHA will examine to determine whether a condominium association qualifies for mortgages insured by FHA. For existing condominium associations, these criteria include:

Eligible Projects - Eligible projects are declared condominium projects that exist in full compliance with appropriate state law. Condominium hotels, timeshares, houseboat projects, multi-dwelling unit condominiums and projects not deemed to be residential are not eligible for FHA insurance under the regulations.

Eligibility Requirements - All condominium project approvals must meet the following requirements:

• Projects must consist of two or more units.
• Projects must be covered by hazard and liability insurance and flood and fidelity insurance where applicable.
• Right of first refusal is permitted, provided it does not violate the Fair Housing Act regulations found in 24 CFR Part 100.
• No more than 25 percent of the total floor area can be used for commercial purposes. The commercial portion must also be of a “nature that is homogenous with residential use.”
• No more than 10 percent of the units may be owned by one investor. This limitation also applies to developers/builders that subsequently rent out vacant and unsold units. For projects with 10 or fewer units, no single entity can own more than one unit.
• Delinquent Homeowners Association Dues [Assessments]: No more than 15 percent of the total units can be in arrears (more than 30 days past due) of their condominium association fee payments.
• At least 30 percent of the total units must be sold prior to endorsement of a mortgage in on any unit. After December 31, 2010, the pre-sale requirement will increase to 50 percent. (See Presale section below)
• At least 50 percent of the units of a project must be owner-occupied or sold to owners who intend to occupy the units. For proposed, under construction or projects in their initial marketing phase, FHA will allow a minimum owner occupancy amount equal to 50 percent of the number of presold units. (Through December 31, 2010, or otherwise provided by FHA, bank-owned properties, vacant, or tenant-occupied real estate-owned properties are excluded from this calculation.)

Budget Review - Mortgagees must review all homeowner’s association budgets (actual budgets for existing projects and projected budgets for new projects) for all project approvals.

• The review must determine that the budget is adequate and:
• Includes allocations/line items to ensure sufficient funding for upkeep of amenities and features unique to the project.
• Provides for the funding of replacement reserves for capital expenditures and deferred maintenance amounting to at least 10 percent of the budget.
• Provides adequate funding for insurance coverage and deductibles (as required under the insurance requirements section).
• If the documents do not meet these standards, the mortgagee may request a reserve study to assess the stability of the project. The reserve study cannot be more than 12 months old. In reviewing the reserve study, consideration must be given to items that have been replaced after the time that the reserve study was completed.

Insurance Requirements- Condominium projects must be covered by hazard, flood, liability, and other insurance as required by state or local laws, or acceptable to FHA under the following criteria:

Hazard Insurance: The Condo Association is required to maintain a master or blanket property insurance equal to 100 percent of current replacement costs exclusive of land, foundation, excavation, or other normal exclusions. If the association does not maintain 100 percent coverage, unit owner gap coverage does not satisfy meeting this requirement.

• HO-6 Coverage: In cases in which the master policy does not include interior unit coverage, the borrower must obtain a “walls in” coverage policy (H0-6).
• Liability Insurance: The association is required to maintain comprehensive general liability insurance covering all common elements, commercial space owned and leased by the owner’s association, and public ways of the condominium project.
• Fidelity Bond/Fidelity Insurance: New or established projects with more than 20 units are required to carry fidelity bonds/insurance for all officers, directors, and employees of the association, and all other persons handling or responsible for funds administered by the association in an amount equal to three months aggregate assessments on all units plus reserve funds.
• Flood Insurance: Insurance coverage equal to the replacement cost of the project less land costs or up to the National Flood Insurance Program standard of $250,000 per unit, whichever is less. If insuring a residential building, the maximum building coverage is $250,000 times the number of units in the building. The association, not the borrower, is responsible for maintaining adequate flood insurance under the NFIP when the building is located in a Special Flood Hazard Area.
• Determining Need for Flood Insurance: If the property is located in a 100-year flood plain, flood insurance is required. If the project is not located in a 100-year flood plain, it is not subject to the flood insurance requirement if documentation is provided (documentation that includes either a final Letter of Map Amendment or a final Letter of Map Revision).

If My Condominium Association Is Already FHA approved, Do We Need to Take Any Additional Action?

Projects that received FHA approval prior to October 1, 2008, will be required to recertify on or before December 7, 2009.

Projects approved between October 1, 2008, and December 7, 2009, will follow the recertification requirements defined below:

Recertification: Condominium projects will expire within two years from the date of placement on the list of approved condominiums. Further participation in the program after this two-year period has expired will require recertification to determine that the project is still in compliance with the HUD’s Owner-Occupancy requirement and that no conditions currently exist which would present an unacceptable risk to FHA. Items that must be given consideration are:

• Pending special assessments
• Pending legal action against the condominium association or its officers or directors
• Adequate hazard, liability insurance, and when applicable, flood insurance coverage

For Qualified Associations, How Many Units Will FHA Provide Financing For?

Concentration Limits (Temporary) - During the transition period of December 7, 2009, to December 31, 2010, FHA will increase its temporary concentration limits (the percentage of units that it will insure in a project) to 50 percent.

FHA will also consider increasing concentrations up to 100 percent if a condominium project meets additional criteria that include:

• The project is 100 percent complete and construction has been completed for at least one year.
• 100 percent of the units have been sold and no entity owns more than 10 percent of the units in the project.
• The projects budget provides for the funding of replacement reserves for capital expenditures and deferred maintenance in an account representing at least 10 percent for the budget.
• Control of the association has been transferred to the owners.
• The owner-occupancy ratio is at least 50 percent. (Bank-owned properties, vacant, or tenant-occupied real estate-owned properties are excluded from this calculation.)

Concentration Limits (Successor) – Beginning on January 1, 2011, or earlier by FHA action, FHA concentrations will revert to the following:

• In projects of 3 or fewer units, FHA will insure no more than 1 unit.
• In projects consisting of 4 or more units, FHA will have no more than 30 percent of the total units encumbered with FHA insurance.
• Calculating the level of FHA concentration in a project declared with legal phases will follow the same methodology as the owner-occupancy requirements.

CAI will keep you updated in the coming weeks as additional information becomes available. Updates will be posted to the “Heads-Up” page on CAI’s Web site. CAI members with questions should call Andrew Fortin, Vice President of Government and Public Affairs, at 703-548-8600, or by e-mail at g&pa@caionline.org, with the subject line “FHA Condo Regs.”

This information and analysis may be reprinted, linked to, or shared provided the following attribution is given: This information is provided courtesy of Community Associations Institute (CAI), a national nonprofit education and advocacy organization that provides education, tools, and resources to association board members, community managers, and other professionals who serve associations. For more information, visit www.caionline.org or call (888) 224-4321.

SUMMARY OF THE DECISION

This issue of trees vs. views was the subject of Eckstrom v. Marquesa at Monarch Beach Homeowners Association (2008) 168 Cal. App. 4th 1111, a recent appellate court decision. Individual homeowners in a common interest development that was comprised of single family homes sued the Marquesa at Monarch Beach Homeowners Association (“Association”) regarding palm trees that had grown to heights exceeding the rooftops and were blocking their views. The CC&Rs provided that all trees on a lot had to be trimmed so as to not exceed the roof of the house unless the tree did not obstruct views from other lots.  The provision further gave the determination of whether trees obstructed views to the sole judgment of the association’s architectural committee.

The Association’s Board (including one member who had over 20 palm trees on his lot) took the position that, because trimming a palm tree would effectively require its removal, the CC&R requirement did not apply to palm trees.  The Board refused to enforce the “view” provision of the CC&Rs against owners who had planted palm trees.  The Board had also adopted a definition of “view” that was very narrowly construed so that it could not apply to require the trimming or removal of palm trees.

The trial court ruled in favor of the individual owners and ordered the Association to enforce its CC&Rs.  The Association argued that its decision to exclude palm trees and define “view” was a business judgment decision and should be given judicial deference, as established in the case of Lamden v. La Jolla Shores Clubdominion Homeowners Assn.  (1999)  21 Cal. 4th 249:

Where a duly constituted community association board, upon reasonable investigation, in good faith and with regard for the best interests of the community association and its members, exercises discretion within the scope of its authority under relevant statutes, covenants and restrictions . . . courts should defer to the board’s authority and presumed expertise.

The appellate court rejected the Association’s argument and concluded that Lamden was not applicable.  The Court determined that the Association’s policy of excepting all palm trees was in conflict with the express provisions of the CC&Rs that trees need to be trimmed so as to not obscure views.   The court further ruled that judicial deference also did not apply to new rules enacted by the Board since they rendered the view provision of the CC&Rs meaningless.  The Court also noted that, in this case, the CC&Rs did not give the Board discretion to make a decision that palm trees were not subject to the CC&R provision.

The Association further argued that the judgment of the trial court should not be upheld because it was unclear as to what it was being ordered to do.  In rejecting this argument, the Court of Appeal noted that the Association simply had comply with its obligations imposed under the CC&Rs and exercise its “good faith” discretion” to determine which trees obstructed the Plaintiffs’ views and then undertake the procedures outlined in the CC&Rs to enforce those provisions.  Because the Association had never attempted to determine which palm trees obstructed views, the Court indicated that is where the Association should begin.

IMPACT OF THIS DECISION FOR HOMEOWNERS ASSOCIATIONS

This case is important for homeowners associations because it holds that an Association’s decision which directly conflicts with the CC&Rs will not be upheld.  What is problematic about this case is that the trial court’s definition of the terms “view” and “obstruct” are very broad:

The word “[obstruct] means to block from sight or be in the way of (and thus even one palm frond would block some portion of a view)” and the term “[view] means that which is visible to the naked eye while standing, sitting or lying down anywhere in one’s home, or anywhere on one’s Lot, looking in any direction one wishes.

It should also be noted that this decision does not prevent an Association from amending its view protection provisions.  If your association has view preservation language, it is important to consult with your legal counsel prior to making decisions regarding enforcing or amending the same.

Tritek, a California corporation, was sued by Mak, a shareholder and board member.  During the lawsuit, Mak wanted to review corporate documents that were protected by the attorney-client privilege.  When Tritek’s other directors refused to give Mak the corporate documents, Mak sought relief from the Superior Court.  Tritek objected, claiming the documents fell under the attorney-client privilege.  The Superior Court denied Tritek’s objections and ordered the corporation to produce the documents.  Tritek then sought relief from the Court of Appeal.

A corporate director owes a fiduciary duty of care to the corporation and its shareholders and must serve in good faith in a manner the director believes to be in the best interests of the corporation and its shareholders.  It is generally presumed that directors of a corporation are acting in good faith.  Corporate directors have the absolute right, at any reasonable time, to inspect and copy corporate books, records and documents.  This right represents a legislative judgment that directors are better able to discharge their fiduciary duties if they have free access to information concerning the corporation.

In reviewing this case, the Appellate Court recognized that the right of a director to free access of information is subject to exceptions and may be denied where a disgruntled director announces his or her intention to violate his or her fiduciary duties to the corporation.

Here, because Mak’s lawsuit against Tritek was filed in Mak’s capacity as a shareholder and prior to asking for the corporate records in his role as a director, the Court found that Mak was not a “disinterested” director and therefore the presumption of good faith did not apply.  The Court determined that enforcing Mak’s “absolute” inspection rights was problematic because it would give him access to documents he could not obtain via discovery in the shareholder action.  The filing of the shareholder action made Mak an adversary of the corporation.  In so ruling, the Court stated:

Mak cannot take off his “shareholder’s hat” and swap it for his “director’s hat” and claim an absolute right to access all corporate documents.

The Court of Appeal held that in this situation, a court may properly limit a director’s inspection rights because the director’s loyalties are divided and documents obtained by a director in his or her capacity as a director could be used to advance the director’s personal interests in obtaining damages against the corporation.

This case is important for homeowners associations because it sets forth the premise that a director who is involved in litigation against the association would not have the right to access documents covered by the attorney-client privilege where they could be used to advance the director’s personal interests in obtaining damages against the corporation.  If an association is involved in a dispute with a director and receives a request from the director to review documents subject to the attorney-client privilege, the association should consult its legal counsel regarding whether or not to disclose those documents.

The USCA “Best of Local Business” Award Program recognizes outstanding local businesses throughout the country. Each year, the USCA identifies companies that they believe have achieved exceptional marketing success in their local community and business category. These are local companies that enhance the positive image of small business through service to their customers and community.

Various sources of information were gathered and analyzed to choose the winners in each category. The 2009 USCA Award Program focused on quality, not quantity. Winners are determined based on the information gathered both internally by the USCA and data provided by third parties.

About U.S. Commerce Association (USCA)

U.S. Commerce Association (USCA) is a Washington D.C. based organization funded by local businesses operating in towns, large and small, across America. The purpose of USCA is to promote local business through public relations, marketing and advertising.

The USCA was established to recognize the best of local businesses in their community. Our organization works exclusively with local business owners, trade groups, professional associations, chambers of commerce and other business advertising and marketing groups. Our mission is to be an advocate for small and medium size businesses and business entrepreneurs across America.

SOURCE: U.S. Commerce Association

With the current state of the economy, collection of assessments has never been more important for every association.  Staying on top of delinquencies is a top priority for almost every association.  While some collections issues drag on for years, others move very quickly.  Rather than calling our office or waiting for a regularly scheduled status report, this new system allows you to check the status of any account at any time.

In addition to permitting you to print out status reports for your associations, you can also view detailed information for any collections account our office is currently handling.

If you would like start using the new system, please contact James McCormick for a training session for your management company and to obtain your login information. Once you have your login information, you can access the new system by clicking this link.  Once there you may want to bookmark the page for future access.

The Association obtained a restraining order against this owner to prevent the relentless harassment of the manager by the owner.  The facts demonstrated that the owner  was on a mission to either have the manager terminated or to force the manager to quit to avoid the abuse.  The harassment included keeping the manager under surveillance.

After two days of trial the Court found the owner in contempt.  The owner was sentenced to five (5) days in jail.  The court agreed to suspend the jail time if the Owner paid a fine and adhered to three (3) years strict probation, which included severely limiting the Owner’s rights.  The probation also included an affirmative requirement that the owner stay a substantial distance away from the manager at all times and that the owner lost the rights to use common area recreational facilities or to visit the office of the manager, etc. The owner was also obligated to reimburse the association substantial legal fees incurred.

Too many mangers have experienced a situation where an over-the-top owner harassed the manager so much that the manager was genuinely afraid and/or forced to endure severe harassment. Some managers simply quit.  The question has been whether there are limits to the amount of abuse and harassment that managers are forced to endure from an owner. The answer is yes! Moreover, in cases in which the harassment is severe, the remedy for that harassment can be equally severe.

Below is the revised “Notice-Assessments and Foreclosure” containing the required additional language within paragraph 2 under the heading “Payments,” for your use and distribution to members.

Please contact our office if you have any questions or concerns.

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This Notice outlines some of the rights and responsibilities of owners of property in common interest developments and the associations that manage them. Please refer to the sections of the Civil Code indicated for further information. A portion of the information in this notice applies only to liens recorded on or after January 1, 2003. You may wish to consult a lawyer if you dispute an assessment.

ASSESSMENTS AND FORECLOSURE

Assessments become delinquent 15 days after they are due, unless the governing documents of the Association provide for a longer time.  The failure to pay association assessments may result in the loss of an owner’s property through foreclosure.  Foreclosure may occur either as a result of court action, known as judicial foreclosure, or without court action, often referred to as nonjudicial foreclosure.  For liens recorded on or after January 1, 2006, an association may not use judicial or non-judicial foreclosure to enforce that lien if the amount of the delinquent assessments or dues, exclusive of any accelerated assessments, late charges, fees, attorney’s fees, interest, and costs of collection, is less than one thousand eight hundred dollars ($1,800).  For delinquent assessments or dues in excess of one thousand eight hundred dollars ($1,800) or more than 12 months delinquent, an association may use judicial or nonjudicial foreclosure subject to the conditions set forth in Section 1367.4 of the Civil Code.  When using judicial or nonjudicial foreclosure, the association records a lien on the owner’s property.  The owner’s property may be sold to satisfy the lien if the amounts secured by the lien are not paid.  (Sections 1366, 1367.1, and 1367.4 of the Civil Code).

In a judicial or nonjudicial foreclosure, the Association may recover assessments, reasonable costs of collection, reasonable attorney’s fees, late charges, and interest. The Association may not use nonjudicial foreclosure to collect fines or penalties, except for costs to repair common areas damaged by a member or a member’s guests, if the governing documents provide for this. (Sections 1366 and 1367.1 of the Civil Code).

The Association must comply with the requirements of Section 1367.1 of the Civil Code when collecting delinquent assessments. If the Association fails to follow these requirements, it may not record a lien on the owner’s property until it has satisfied those requirements. Any additional costs that result from satisfying the requirements are the responsibility of the Association. (Section 1367.1 of the Civil Code).

At least 30 days prior to recording a lien on an owner’s separate interest, the Association must provide the owner of record with certain documents by certified mail, including a description of its collection and lien enforcement procedures and the method of calculating the amount. It must also provide an itemized statement of the charges owed by the owner. An owner has a right to review the Association’s records to verify the debt. (Section 1367.1 of the Civil Code).

If a lien is recorded against an owner’s property in error, the person who recorded the lien is required to record a lien release within 21 days, and to provide an owner certain documents in this regard. (Section 1367.1 of the Civil Code).

The collection practices of the Association may be governed by state and federal laws regarding fair debt collection. Penalties can be imposed for debt collection practices that violate these laws.

PAYMENTS

When an owner makes a payment, he or she may request a receipt, and the Association is required to provide it. On the receipt, the Association must indicate the date of payment and the person who received it. The Association must inform owners of a mailing address for overnight payments. (Section 1367.1 of the Civil Code).

An owner may, but is not obligated to, pay under protest any disputed charge or sum levied by the association, including, but not limited to, an assessment, fine, penalty, late fee, collection cost, or monetary penalty imposed as a disciplinary measure, and by so doing, specifically reserve the right to contest the disputed charge or sum in court or otherwise.

An owner may dispute an assessment debt by submitting a written request for dispute resolution  to the association as set forth in Article 5 (commencing with Section 1368.810) of Chapter 4 of Title 6 in Division 2 of the Civil Code.  In addition, an association may not initiate a foreclosure without participating in alternative dispute resolution with a neutral third party as set forth in Article 2 (commencing with Section 1369.510) of Chapter 7 of Title 6 of Division 2 of the Civil Code, if so requested by the owner.  Binding arbitration shall not be available if the association intends to initiate a judicial foreclosure.

An owner is not liable for charges, interest, and costs of collection, if it is established that the assessment was paid properly on time. (Section 1367.1 of the Civil Code).

MEETINGS AND PAYMENT PLANS

An owner of a separate interest that is not a time-share may request the Association to consider a payment plan to satisfy a delinquent assessment. The Association must inform owners of the standards for payment plans, if any exist. (Section 1367.1 of the Civil Code).  The Board of Directors must meet with an owner who makes a proper written request for a meeting to discuss a payment plan when the owner has received a notice of a delinquent assessment. These payment plans must conform with the payment plan standards of the Association, if they exist. (Section 1367.1 of the Civil Code).