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Archive for the ‘HOA’ Category

Before bringing or defending an enforcement action filed in court involving an HOA, ask, does your state first require ADR or that a request for ADR be made?

Posted on: March 12th, 2019

By: Michael Shepherd

As courts across the country become more congested, many courts now order the parties to participate in some form of alternative dispute resolution, such as mediation or non-binding arbitration. When it comes to Homeowners Associations, many state legislatures have taken the affirmative step of requiring HOAs or owners bringing an enforcement action to at least request ADR before filing a lawsuit in court.

It is important to carefully examine your state’s laws to see (1) whether ADR or a request for ADR is required and (2) under what circumstances. For example, California only requires a request for ADR in civil actions that (1) solely seek declaratory, injunctive, or writ relief; (2) solely seek declaratory, injunctive, or writ relief in conjunction with monetary damages not in excess of the limits for small claims actions; and (3) seek to foreclose on an owner’s interest. Cal. Civil Code §§ 5930(b) and 5705. Moreover, a request for ADR is not required in California if the action is filed in small claims court or if preliminary or injunctive relief is necessary. Cal. Civil Code §§ 5930(c) and 5950(a)(3).

In California, the Davis-Sterling Act prevents associations or owners from filing an enforcement action in court before the parties have attempted to submit their dispute to ADR. An enforcement action is defined as a civil action brought to enforce the Davis-Sterling Act, to enforce the Nonprofit Mutual Benefit Corporation Law, or to enforce the governing documents of the HOA. Cal. Civil Code § 5925(b). ADR can take the form of mediation, arbitration, conciliation, or any other nonjudicial procedure that involves a neutral party in the decision-making process. While there is no requirement that the parties participate in ADR, a party’s unreasonable refusal to participate in ADR may be considered when attorney’s fees and costs are recoverable. Cal. Civil Code § 5960. Furthermore, the parties must file a certificate of compliance with the civil action stating that ADR was requested or that a request is not required under the circumstances. Failure to file the certificate of compliance exposes the complaint to a demurrer or a motion to strike.

In today’s world of congested courts, it is important to be apprised of when ADR is required as it is often implemented as a way to relieve court dockets. This is just as true in enforcement actions involving HOAs. Therefore, before bringing or defending an enforcement action involving an HOA, be sure to learn whether your state requires ADR or a request for ADR.

If you have any questions or would like more information, please contact Michael Shepherd at [email protected].

Best Practices for HOA Elections

Posted on: February 13th, 2019

By: Charles McCurdy

In California, as communities with HOAs have proliferated, so has the thicket of statutes, rules and regulations that apply to their operations. For example, just holding an election for an HOA’s Board of Directors implicates California’s Civil Code, its Corporations Code and an HOA’s governing documents, including its bylaws and CC&Rs. Additionally, since 2006, HOAs must have separate documents setting forth their voting rules. As HOA elections frequently morph into contentious affairs, it is often a good idea to provide as much clarity as possible on the standards and procedures to be used in advance of the election. This can help elections run more smoothly and may enable HOAs to avoid disputes and even costly litigation about the results.

To further this goal of more agreeable elections with more definite outcomes, HOAs should update their governing documents, particularly bylaws and voting rules. The Civil Code (§ § 5105 – 5130) relating to HOA elections has changed twice in the somewhat recent past (2006 and 2013), while many HOA’s governing documents date from their founding. In many instances, amended statutes may supersede outdated governing documents. This can sow confusion when members rely on governing documents that no longer control to understand how the election will be run, who are eligible candidates, and other important election-related considerations. Once governing documents comport with current statutes, HOAs should distribute them to their members in the lead up to elections. For example, HOAs can include these documents as part of an election package that may also include ballots, candidate information and other instructions or regulations. HOAs should also remember the law mandates equal access to association media (such as newsletters) and meeting space for campaigning.

While HOA elections may not always bring out the best in their members, a bit of anticipatory drafting and information sharing can go a long way to avoiding litigation over their results.

If you have any questions or would like more information, please contact Charles McCurdy at (415) 352-6416 or [email protected].

California Enacts New Anti-Fraud Laws To Protect HOA Members

Posted on: January 24th, 2019

By: Greg Fayard

In California, an anti-fraud bill designed to protect HOA members sailed unopposed through the legislature becoming law January 1, 2019.

The Community Associations Institute and the California Association of Community Managers sponsored the bill, which makes various changes to California’s Davis-Sterling Common Interest Development Act—the statutory scheme governing HOAs in the state. The purpose of the bill was “to take important steps to protect [HOA members] from fraudulent activity by those entrusted with the management of the association’s finances.”

The bill changed California’s Civil Code related to homeowner association money management to require any transfer of $10,000 or 5% of total association combined reserve and operating deposits (whichever is smaller) have prior written approval from the association’s board. (Civ. Code, §§ 5380(b)(6) and 5502.)

The new law prevents overly active board officers or HOA managers who pay bills or transfer funds without first getting explicit board approval. The intent of the new statute appears to require express permission for each individual transfer over $10,000 or 5% of the association’s deposits. Advance written authorization from a board is required not only for payments and withdrawals but also deposits and transfers between association accounts.

Civil Code section 5500 has required boards to at least quarterly review the HOA’s operating and reserve accounts, the reserve revenues and expenses compared to budget, the latest account statements, and income and expense statements for each HOA bank account. Under the amended Civil Code section 5500, these reviews must now be monthly, not quarterly.

Fortunately, new Civil Code section 5501 allows boards to meet the financial review requirements without meeting. The review, however, must be performed by each director or by a subcommittee consisting of the treasurer and another director, with ratification of this review noted at the next open board meeting.

The last new anti-fraud law change is new Civil Code section 5806. This statute requires all associations have fidelity (dishonesty) insurance in an amount equal to at least the total reserve funds plus three months of assessments. The insurance must include computer fraud and funds transfer fraud and must cover the association’s management company if the HOA is professionally managed.

All these changes have one purpose in mind: prevent financial fraud from being perpetrated on HOA members by their HOA leaders.

If you have any questions or would like more information, please contact Greg Fayard at [email protected].

“You Can’t Always Get What You Want, But . . . You Get What You Need”: Determining What is “Necessary” Under the Fair Housing Act

Posted on: December 12th, 2018

By: Jake Loken & Bill Buechner

In a case citing The Rolling Stones, Henry Thoreau, and Abraham Lincoln, and listing the ingredients needed to make lemonade, the Third Circuit rejected an elderly woman’s disability discrimination claim under the Fair Housing Act.

In Vorchheimer v. Philadelphian Owners Association, 903 F.3d 100 (3d Cir. 2018), Carol Vorchheimer, an elderly woman, wanted to leave her rolling walker in her condo building’s lobby. Vorchheimer needed the walker to get around her condo and the building, but did not need it when going from the lobby to her car. Vorchheimer wanted to leave the walker in the lobby when she left to go to her car, but was provided four alternatives by the property manager for storing her walker instead of leaving the walker out in the lobby. The alternatives, however, did not satisfy Vorchheimer’s desire to simply leave the walker in the lobby.

After a year of continually leaving the walker in the lobby, without using any of the alternative options, and having staff move the walker into storage, Vorchheimer filed a lawsuit against the owner’s association, the association’s president at the time, and the property manager. The lawsuit alleged the defendants violated the Fair Housing Act, specifically, 42 U.S.C. 3604(f)(3)(B), by discriminating against Vorchheimer in refusing to allow her to leave the walker out in the lobby. Freeman Mathis & Gary, LLP attorney Christopher Curci argued on behalf of the defendants at oral argument before the Third Circuit.

The Court examined section 3605(f)(3)(B), which states: “Discrimination includes [1] a refusal to make [2] reasonable accommodations in rules, policies, practices, or services, [3] when such accommodations may be [a] necessary to afford such person [b] equal opportunity to use and enjoy a dwelling[.]” 903 F.3d at 105. The Court focused in on what is meant by “necessary” in this section.

Typically, a suit alleging discrimination under this section focuses on the “reasonable accommodation” factor. In Vorchheimer, the court focused on the “necessary” factor, and held that what is “necessary” is a question of law to be determined by the court, along with holding the “necessity element requires that an accommodation be essential, not just preferable.” 903 F.3d at 107. The Court further held that a particular tenant’s needs must first be identified, then after doing so, a court “can gauge what is necessary to afford that tenant equal hosing opportunity.” Id. at 108.

In determining what a tenant’s needs are, the Court thoroughly discussed what the word “necessary” means, and then examined doctors’ letters detailing Vorchheimer’s disabilities and medical needs, which were exhibits to her complaint. The Court determined that Vorchheimer’s needs were “use of a rolling walker” and minimal “period[s] of unsupported standing.”

Next, the Court turned to whether the alternatives proposed by the property manager satisfied these needs. The Court found that leaving the walker out in the lobby was Vorchheimer’s want, and not a need, and that the four alternatives posed by the manager satisfied Vorchheimer’s needs of minimal unsupported standing and use of the walker when moving around the building.

For HOAs, this holding means that if a HOA offers reasonable alternatives that meet a tenant’s needs, even though they may not be the tenant’s preferred accommodations, then the existence of these alternatives will make the tenant’s preferred accommodation not “necessary.” The Sixth, Seventh, Tenth, and Eleventh Circuits have all likewise held that a plaintiff is not entitled to his or her preferred accommodation if it is not essential to having equal housing opportunities.

After Vorchheimer, the Third Circuit makes it clear that the term “necessary” as used in the Fair Housing Act does not include wants, and helps make The Rolling Stones lyrics ring truer than ever, as “[y]ou can’t always get what you want, but if you try sometime you find, you get what you need.”

If you have any questions or would like more information, please contact Jake Loken at [email protected] or Bill Buechner at [email protected].

Florida Updates Its HOA Laws

Posted on: December 10th, 2018

By: Michael Kouskoutis

Earlier this year, Florida has enacted several laws impacting homeowners associations. Among these changes include the following:

As of July 1, 2018, Florida requires homeowners associations to publicly record all amendments to governing documents, where “governing documents” is defined to include “rules and regulations adopted under the authority of the recorded declaration, articles of incorporation, or bylaws and duly adopted amendments thereto.” Prior to this law, an HOA’s rules and regulations did not need public recording to take effect. Therefore, associations should publicly record such rules passed after July 1, 2018, especially prior to any attempt to enforce them.

Also as of July 1, 2018, association board members are not permitted to cast votes through email, and fines levied by the board and approved by the committee must be paid within 5 days after the committee’s approval. Moreover, amendments must be presented to voters with proposed changes either underlined or stricken, unless it would hinder the ability to understand the amendment, whereby a notation must be inserted before the proposal.

While these changes are not monumental, we still encourage homeowners associations to be mindful of them. If you have any questions or would like more information, please contact Michael Kouskoutis at [email protected].