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The-Vineyards-300x169It’s our privilege to welcome The Vineyards at Dublin Greene Owners Association to Tinnelly Law Group’s growing family of HOA clients.

The Vineyards is a condominium community located in the city of Dublin.  Residents enjoy a community pool and spa.

hoa law firm Our HOA lawyers and staff look forward to working with The Vineyard’s Board and management.

*New Legislation

hoa-financial-protection

AB 2912, passed in 2018, provided welcome protections to homeowners in HOA’s from fraudulent activities by those entrusted with managing an HOA’s finances. AB 2912’s protections included: 1) requiring Associations to secure fidelity bond insurance in an amount equal to or exceeding current reserves, plus three months of assessments; 2) requiring a monthly review of financial statements rather than quarterly; and 3) prohibiting electronic transfers of funds without board approval. However, certain provisions of AB 2912 were unclear.

To settle any confusion, AB 1101 was passed by the California Legislature in September of 2021.  Effective January 1, 2022, Civil Code Sections 5380, 5502, and 5806, will be amended in order to clarify existing law by:

1) Specifying that HOA funds shall be deposited into accounts insured by Federal Deposit Insurance Corporation or the National Credit Union Administration Insurance Fund. This ensures that HOA funds are properly preserved and not invested in any high-risk investments or stocks.

2) Establishing clear limits before board approval is required for the transfer of HOA funds. While AB 2912 provided a process by which HOA’s should approve major expenses, the process for calculating those limits was somewhat confusing and was subject to change based on the amount of money on deposit in the HOA’s bank accounts. With AB 1101, the process is clear. For HOA’s with 51 or more units, transfers of $10,000.00 or more must be approved by written approval of the board. For HOA’s with 50 or fewer units, transfers of $5,000 or greater must be approved in writing by the Board.

3) Specifying that the HOA must not just maintain fidelity bond coverage, but that it must now also maintain crime insurance and employee dishonesty coverage, or their equivalent, for dishonesty acts of the person or entity and their employees. This coverage would extend not just to the HOA and its directors, officers and employees, but also to managing agents and their employees.

California HOA lawyers Common sense legislation that protects the financial interests of HOA’s, which are unfortunately often targets for embezzlement, is a breath of fresh air. As always, HOA’s with questions regarding new legislation or legal requirements related to insurance or finances, should contact their HOA lawyer.

-Blog post authored by TLG Senior Attorney, Carrie Heieck

*New Legislation

hoa-acclamation

There has been disagreement within the homeowners association (HOA) legal community as to whether California law permits uncontested director elections to be carried out by acclamation, especially in situations where the HOA’s bylaws contain language permitting such a procedure. Our firm has always held that such a procedure is not permitted regardless of any language within an HOA’s Bylaws to the contrary. Our position is based on Civil Code section 5100(a) which provides that the Civil Code’s election procedures must be followed “[n]otwithstanding any other law or provision of the governing documents…” Accordingly, any Bylaw provisions purporting to permit elections by acclamation were superseded by Section 5100(a) of the California Civil Code.

Our position was recently supported by the adoption of Senate Bill 323 (“SB 323”) in 2019. SB 323 finally addressed the issue of elections by acclamation, and in doing so, specified that such a procedure was only available to HOAs with 6,000 or more units. This provided clear indication of the Legislature’s intent to require smaller HOAs (those with less than 6,000 units) to comply with the secret ballot procedure and conduct a full election even in situations where the election was uncontested (where, at the close of nominations, the number of candidates was not greater than the number of board positions to be filled).

This statutory scheme has understandably been the source of frustration for HOAs who have been compelled to incur the expense of conducting a full election (preparing, printing, and mailing ballots, etc.) in situations where the election is uncontested and the outcome of the election is already known prior to the distribution of ballots.  We were therefore pleased at the introduction of Assembly Bill 502 (“AB 502”) earlier this year.  AB 502 is aimed at resolving this problem by expanding the election by acclamation procedure to all HOAs irrespective of their size.

We are thrilled to report that AB 502 was just signed into law.  Effective January 1, 2022, HOAs will be available to utilize an acclamation procedure specified under a new section of the Civil Code, subject to certain requirements that must be satisfied during the pre-balloting process. Those requirements include (among others):

  1. Holding a regular director election at least once every three (3) years;
  2. *Providing specified notices to the membership of the potential for the acclamation procedure to be utilized if the number of candidates does not exceed the number of board positions to be filled. This notice must be provided least ninety (90) days before the nomination deadline, and another reminder notice must be provided between seven (7) and thirty (30) days before the nomination deadline;
  3. Confirming receipt of the nomination within seven (7) business days of receipt of same; and
  4. Notifying a nominee as to whether they are qualified to be a candidate and, if not, the reason for the disqualification and the procedure to appeal the decision.

*It is important to note that, under the new law, the notices described in Item 2 above must be provided via “individual notice”—meaning they must be mailed directly to every member within the HOA who has not previously consented to the receipt of individual notices electronically, as authorized under Civil Code section 4040(a)(2).  Previously, notices regarding the election procedure were only required to be delivered via “general notice” (e.g., posting the notice in a prominent location within the HOA).  This may undercut the cost-saving benefit HOAs hope to receive from being able to utilize the acclamation procedure; while the HOA may save on expenses by not having to prepare, mail and tabulate ballots for an uncontested election, it will have to incur greater expenses during the pre-election procedures to prepare additional notices and mail them to each member.  This should motivate every HOA to take additional measures to secure their members’ consent to the receipt of individual notices via email, at least in the context of election-related notices.

California HOA lawyers Although the pre-election procedures are more cumbersome, AB 502 provides much needed relief from meaningless elections. This does not mean, however, that an HOA is able to dispense with its annual meeting altogether, as the language of its CC&Rs or Bylaws may still require an annual meeting for other purposes. HOA Boards and management professionals should consult with their HOA attorney to understand the impact of the new law and the corresponding impact on their HOA’s annual meeting and director election procedure.

-Blog post authored by TLG Partner, Matthew Plaxton

Meredith-Manor-300x169It’s our privilege to welcome Meredith Manor Homeowners Association to Tinnelly Law Group’s growing family of HOA clients.

Meredith Manor is a Spanish inspired condominium community located in the city of Fullerton.  Residents enjoy a community pool and views of the city lights.

hoa law firm Our HOA lawyers and staff look forward to working with Meredith Manor’s Board and management.

Due-ProcessRules are meant to be followed.  However, some homeowners unknowingly or knowingly violate these rules.  What should an association do under these circumstances?

First and foremost, every association should have clear disciplinary and enforcement procedures (i.e., due process) regarding the handling of a homeowner’s violation of the association’s governing documents (Civil Code section 5850(c)).  Think of associations as miniature governments in which each homeowner would have certain constitutional rights associated with their life, liberty, and property.  Due process refers to the fact that in such matters, the association must provide homeowners with notice of the violation, the opportunity to be heard, and a decision upon neutral analyzation by the association (Civil Code section 5855).

For due process to be effective any disciplinary procedures and enforcement of such must be clearly delineated in a policy.  The purpose of such a policy is to ensure the association will not arbitrarily or capriciously adjudicate enforcement matters.  The enforcement policy should include:

  • The method of how to report violations, whether by a homeowner or association agent (i.e., patrol, Board member, violations committee). Usually, associations have management companies and require that all reported violations be submitted in writing or email to management first.
  • Clear steps on what is to occur when a violation is noted. An association might decide to send an initial courtesy violation notice to the homeowner stating the observation of a violation.
    1. If so, the association should include: (1) details of the violation (i.e., when, where, who, what, how); (2) cite the association rule(s) the homeowner violated; (3) include a photo or photos of the violation; and (4) request compliance within a specific amount of days. The time period for the homeowner to rectify the violation may vary depending on the nature of the violation, but the association should always adhere to what would be considered reasonable under the circumstances.  Additionally, the association should mention that should the violation not be rectified, the homeowner may be fined pursuant to the association’s fine schedule.
    2. The association’s fine schedule should detail: the different categories of violations, fine to be assessed for each type of violation, and fines associated with repeated offenses. Please note that different categories of violations may have different fine schedules so that the fine fits the type of violation (e.g., short-term rental fine versus nuisance fine).
  • If the initial courtesy letter does not prompt the homeowner’s compliance, the enforcement policy may delineate whether the association will be sending either another violation notice detailing a shorter period of time to correct the violation OR a notice regarding the hearing when the Board is to meet to consider or impose disciplinary measures upon a member pursuant to Civil Code section 5855 and Corp. Code section 7341(d).
    1. The second violation/hearing notice should detail the violation in the same manner as the initial courtesy violation notice.
    2. Note that the association must notify the homeowner of a hearing in writing and deliver the notice pursuant to Civil Code section 4040 at least ten (10) days prior to the meeting at which fines may be imposed, or at least fifteen (15) days prior to the meeting at which the association may suspend the member’s common area use privileges. A homeowner must have an opportunity to be heard and present their case to the association before they may be disciplined.
  • If disciplinary measures or a monetary penalty is imposed, the association must provide written notification of this decision pursuant to Civil Code section 4040 within fifteen (15) days following the action.
  • If levying a fine upon the homeowner in accordance with the association’s fine schedule does not induce the homeowner’s compliance, the enforcement policy may then indicate legal counsel involvement. On the other hand, the enforcement policy might detail situations where the association will elect to grant a homeowner an extension of time to abate the violation OR dismiss the enforcement matter entirely due to lack of substantive evidence against the homeowner.
    1. Note that in certain circumstances, the association may skip the standard enforcement procedures and involve legal counsel immediately upon notice of the violation(s) (i.e., cease & desist, dangerous situations concerning member safety, irreparable damage to association property will occur).
California HOA lawyers It is quite important for associations to have a clear enforcement policy and to strictly adhere to such policy.  If the homeowner’s violation(s) remained unresolved, the association might proceed with litigation, in which case the court will scrutinize whether the association observed procedural due process.  Associations should look to their general counsel to draft or update their enforcement policy and ensure their management is familiar with the policy and its execution.

-Blog post authored by TLG Attorney, Vivian X. Tran, Esq.

New-Newsletter-Template-300x167In case you missed it, Issue # 51 of our ‘Community Association Update’ newsletter is available now!

Topics covered in this issue include:

  • SB 9 Signed! Statewide Re-zoning of Single-Family Neighborhoods & Urban Parcel Splits
  • Removal of Common Area Amenities
  • Recall Petitions
  • Court Confirms not Everyone is Entitled to a Protected View
  • Megan’s Law HOA Disclosures

A link to the newsletter is here.

Need to be added to our mailing list? Click here to sign up. Links to previous editions of our newsletter can be found here.

Deer-Ridge-300x169It’s our privilege to welcome Deer Ridge Homeowners Association to Tinnelly Law Group’s growing family of HOA clients.

Deer Ridge is an upscale community of single family homes located in San Ramon.  Residents enjoy large lots and views of the San Ramon hills and valley.

hoa law firm Our HOA lawyers and staff look forward to working with Deer Ridge’s Board and management.

*New Legislation

hoa-duplex

Senate Bill 9 (SB 9) was recently signed into law making revisions to the California Government Code effective January 1, 2022.  This bill is touted as a major step in California’s efforts to address the housing crisis by re-zoning single family lots to allow for duplexes and more. Below is an overview of some of the primary components of this rather complicated legislation.

Construction of two (2) units on a single parcel zoned as single-family residential

California law will now permit the division, partial or full tear down of an existing single-family home to create two (2) separate residential units, which need not be attached and which are eligible to be sold separately. A municipality will be required to ministerially approve such a project without any significant review or public comment.  Because this law will operate in conjunction with existing law permitting the construction of Accessory Dwelling Units (ADUs), it will allow even more units to be built on the parcel without public review. Local ordinances that would physically preclude construction of the two units cannot be enforced. Any parking requirements to be imposed by local ordinances must be limited to requiring only one “parking space” (not necessarily a garage) per residential unit, and must be eliminated entirely if the project is located within one-half mile of public transit or if there is a car share vehicle located within one block of the project.

Splitting of an existing parcel into two (2) separate parcels

SB 9 also permits urban lot splits in residential zones to create two (2) equal parcels of a minimum of 1,200 square feet. It further prohibits the application of local requirements that would physically preclude the construction of two (2) units to be built on each split lot, subject to other requirements of questionable merit and enforceability (e.g., the ability for a local requirement to be imposed mandating that the owner of the parcel ‘certify’ that they will live in one of the units for at least the first three (3) years after the project’s completion). The parcel split may operate in conjunction with SB 9’s allowance of two (2) separate residential units on a single parcel–allowing for four (4) units to ultimately be constructed on a parcel where only one single-family home may have existed (and even more units if ADUs and JADUs are also constructed on the newly subdivided parcels).

*Impact on HOA CC&R Restrictions is unclear – The common question/concern we are receiving in connection with SB 9 is whether it will override homeowners association (HOA) governing documents that prohibit the type of development projects within HOAs that SB 9 is intended to provide.  For example, it is common for an HOA’s CC&Rs to contain provisions prohibiting homeowners from subdividing their lots.  Unfortunately, SB 9 is silent with respect to this issue and those in the HOA legal community are concerned that SB 9 could be construed as demonstrating public policy in favor of these types of projects.  California courts have held that CC&R restrictions which violate public policy may be challenged and held as enforceable. (See Narstedt v. Lakeside Village Condo. Assn. (1994) 8 Cal. 4th 361).

Senator Toni Atkins, the author of SB 9, submitted a letter to the California Secretary of State ostensibly addressing this concern.  It provides in pertinent part that:

“…on the issue of common interest developments (CID) and homeowners’ associations (HOA). My office has consulted with Legislative Counsel, and SB 9 would not override CID or HOA restrictions. Specifically, SB 9 is silent on the issue, meaning the bill contains no provisions that supersede HOA or CID governing documents. As we have seen with other housing legislation, SB 9 would have to contain an explicit and proactive provision to override those rules. This bill does not.” (Emphasis added.)

While superficially this may seem helpful, it notably fails to state anything regarding the intent of SB 9 and the California Legislature with regard to this issue.  The letter does not have the force of law and whether it will be given weight by California courts in assessing the public policy of SB 9 as it applies to HOAs is anyone’s guess. Moreover, efforts by CAI’s California Legislative Action Committee to request changes to SB 9’s language to explicitly state that it does not override HOA governing documents were ignored.

California HOA lawyers Questions remain as to what, if any, impact SB 9 will have on HOAs and the degree to which homeowners, investors and residential developers will actually find it financially advantageous to pursue multi-unit residential projects within single-family common interest developments. 

Heritage-Ranch-300x169It’s our privilege to welcome Heritage Ranch Community Association to Tinnelly Law Group’s growing family of HOA clients.

Heritage Ranch is a planned development located in the foothills of San Jacinto.  Residents enjoy the pool, fitness room, billiard room, and beautiful mountain views.

hoa law firm Our HOA lawyers and staff look forward to working with Heritage Ranch’s Board and management.

*Asked & Answered

recall-WEBAsked – We recently completed our annual meeting/election where approximately ninety-four percent (94%) of the membership participated. Almost immediately thereafter, we received a petition to recall the Board of Directors (“Board”). Must our association go forward with the recall election? What alternate options are available to the Board?

Answered – Most common interest developments (“CIDs”) are formed as nonprofit mutual benefit corporations. Under California’s nonprofit corporation law, “any or all directors may be removed without cause” (Cal. Corp. Code § 7222 (emphasis added)); meaning that directors can be removed by the membership for any reason, or no reason at all. In order to initiate the recall process, five percent (5%) of the membership may submit a petition to the CID (usually addressed to its president) requesting that a special meeting of the membership be noticed for the purpose of recalling the Board (or any director). The notice requirements are addressed in California Corporations Code section 7511(c).

Recall elections can disrupt the effective operation of the CID and are often a costly endeavor. And, in most cases, such efforts fail to achieve the petitioning members’ desired objective—the removal of the Board. This is especially true in situations where the CID’s Bylaws allow for cumulative voting and members try to recall individual directors. (See Removal & Recall of Directors – Individual Director or Directors.) Nevertheless, under most circumstances, the CID must take action in response to a petition to recall the Board. However, based on the facts contained in the question presented, there may be other options available. The three options available in response to a valid recall petition are:

  1. Perform only those acts required to conduct a recall election;
  2. Do nothing in response to the petition other than to inform the petitioners that the Board has elected not to take action; or
  3. Perform all acts necessary to hold a recall election and concurrent director election.

Each option will be discussed in turn.

Option #1 – Perform only those acts required to conduct a recall election.

According to the facts provided in this question, the petitioning members have submitted a petition to recall the Board. The petitioning members have not also requested that a director election be held in the event the recall is successful. Thus, the Board could simply notice a special meeting of the membership to recall the Board without soliciting membership votes on replacement directors. This approach is problematic for the CID.

Under California Corporations Code section 7220(b), a director continues to serve until their successor is elected, “unless the director has been removed from office.” Thus, if the recall is successful, all directors immediately cease being on the Board; in other words, the CID will be without a Board. Failure to have a Board violates California Corporations Code section 7210, which states that “[e]ach corporation shall have a board of directors.” (Emphasis added.) Moreover, without a Board, the CID will be significantly prejudiced; it will not be able to carry out its obligations under California law and its governing documents (e.g., maintenance may cease, rule enforcement ends, the CID will be unable to respond to lawsuits, etc.).

Since the CID will be without a Board, members will be forced to file a petition with the Superior Court for the appointment of a receiver pursuant to California Code of Civil Procedure section 564(a)(9). The receiver will then manage the affairs of the CID and will initiate the procedure to conduct a director election. This, of course, is problematic in several respects.  First, receivers are paid for their services. Most CIDs do not have adequate financial resources to cover unanticipated expenses. The receiver therefore may be forced (and will have the authority) to levy an emergency special assessment. Second, the receiver’s objectives are not usually in line with the interests of the CID’s members.

In light of the foregoing concerns, it would not be in the CID’s best interest to proceed in this fashion (i.e., conduct the recall election without a concurrent director election).

Option #2 – Do nothing in response to the petition other than to inform the petitioners that the Board has elected not to take action

Based on the information given, this option may be reasonable under the circumstances, especially given the overwhelming voter turnout (approximately ninety-four percent (94%) of the membership participated in the election). If such option is selected, the petitioning members will have the option of giving notice of the special meeting pursuant to California Corporations Code section 7511(c), or may petition the Court to require that such notice be given by the CID. Either way, the petitioners will be required to obtain a Court order directing the CID to prepare and distribute ballots as the petitioners do not have such authority. (See Cal. Civ. Code § 5115 (“Ballots and two preaddressed envelopes with instructions on how to return ballots shall be mailed by first-class mail or delivered by the association to every member….”).)

This option, while seemingly reasonable, raises similar concerns referenced above. To the extent members petition the court for an order compelling the CID to take action in response to the petition (including providing notice and preparing/distributing balloting materials), the CID will incur significant legal fees in defense of its position in this matter (unless insurance-appointed defense counsel steps in to provide a defense). And, in the event the petitioners are successful, the CID will incur costs relative to holding the recall election/director election. Again, most CIDs are not in a financial position to incur these additional costs.

Option #3 – Perform all acts necessary to hold a recall election and concurrent director election.

The third, and final, option—to conduct the recall election and concurrent director election—is the only option available to the CID that minimizes the CID’s financial harm and liability exposure. It is therefore the preferred course of action in response to a petition to recall the Board.

It is important to note that recent changes to the California Civil Code governing CID elections has made it practically impossible for a CID to comply with the timing requirements contained in California Corporations Code section 7511(c) and those contained in California Civil Code section 5115. Nevertheless, California Civil Code section 5100(a)(1) makes it clear that the procedural requirements contained within the Davis-Stirling Common Interest Development Act (“Act”) control—“Notwithstanding any other law….” The CID must therefore comply with the procedural requirements contained in California Civil Code section 5115 notwithstanding the degree to which same deviates from those contained in California Corporations Code section 7511.

Other Option Available to the CID to Prevent Recall Petitions Immediately After a Director Election

The foregoing has addressed the ways in which a CID may respond to a recall petition immediately after the conclusion of a director election. It does not, however, address how a CID may prevent such petitions from being brought in the future. One way in which a CID may prevent such petitions from being brought in the future is to adopt rules governing recall elections. Although the Act does not directly address the extent to which a CID may restrict recall petitions, other bodies of law have. For example, in the California Elections Code, a person is precluded from bringing a recall petition against “an officer of a city, county, special district, school district, community college district, or county board of education” if one ore more of the specifically identified limitations apply (e.g., the officer “has not held office during [their] current term for more than 90 days”). A CID may adopt a similar limitation for director recalls.

California HOA lawyers Each recall petition is unique. Thus, while the foregoing provides general guidance based on the particular facts identified above, each CID must confer with its attorney to determine the appropriate response to a recall petition.

-Blog post authored by TLG Attorney, Matthew T. Plaxton, Esq.

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