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Archive for the ‘HOA’ Category

Changes In Store for California HOA Elections

Posted on: November 18th, 2019

By: Nicole Clowdsley

With 2020 fast approaching, California HOAs should be proactively preparing to comply with a litany of new statutorily mandated changes to their election processes. On October 12, 2019, California Governor Gavin Newsom signed Senate Bill 323 into law resulting in amendments to multiple sections of the California Civil Code regulations governing HOA elections. These changes become effective January 1, 2020.

Among the more significant substantive changes are specific standards HOAs may use to disqualify candidates from running, such as ineligibility of persons with certain past criminal convictions. Also, in order for an HOA to allow for board member acclamation – meaning there are more open positions than nominees and the nominees simply take the board seats – an HOA needs to have at least 6,000 units! HOAs may no longer suspend any member’s voting rights for any reason other than not being a member. Finally, in addition to limiting who may serve as an inspector of elections, HOAs must now ensure the inspector retains additional election materials, such as candidate registration and voter lists, for one year following the election process.

In addition to all the new requirements HOAs must abide by, associations needing to amend their election operating rules must now do so no later than 90 days before an election. So, for those HOAs with elections after the first of the year, time is of the essence. HOAs must act quickly to ensure upcoming elections are conducted in accordance with California’s extensive new requirements, or, they could find their election results overturned for legal noncompliance.

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

‘Tis the Season. The HOA v. The Holiday Display

Posted on: October 15th, 2019

By: Nicole Graham

Piling the family in the car to drive through the neighborhood and see holiday displays is a time-honored tradition. With Halloween and the winter holiday season quickly approaching it is a good time to review the HOA’s guidelines on exterior, seasonal décor. Costly disputes between the HOA and an overly-festive homeowner may be avoided with clearly-expressed, seasonal guidelines that do not go beyond the scope of the HOA’s authority.
In Sainani v. Belmont Glen Homeowners Ass’n., 831 S.E.2d 662 (VA 2019), a fight over two strings of holiday lights between an HOA and homeowners went up to the Supreme Court of Virginia. The seasonal guidelines were intended to promote harmony in the community; avoid discourteous and unsafe conditions affecting property values; to avoid religious issues in the community; and to avoid the prolonged display of lights and decorations outside the respective holiday. The seasonal guidelines permitted “tasteful special decorative objects and lighting that are consistent with recognized Federal Holidays, Religious Holidays, Valentine’s Day and Halloween” for a specific length of time. The guidelines further required decorative lights be turned off by midnight each evening.

One home in the community displayed a string of lights on its front door and another string of lights on the railing along the back-deck in celebration of several Hindu, Sindhi, and Sikh religious holidays throughout the year. The HOA sent the homeowners letters outlining their violation of the seasonal guidelines.  The homeowners did not respond.  A hearing was held.  The homeowners did not appear. The review board who oversaw the hearing imposed a $10 per day fine for each day the violations went uncorrected for a period of up to 90 days. The homeowners did not correct the violations or otherwise respond.  Litigation ensued.

The homeowners argued the seasonal guidelines exceeded the HOA’s authority under its declaration of restrictive covenants and were thus unenforceable. The HOA claimed the seasonal guidelines were authorized by the declaration of restrictive covenants governing the community.

The Virginia Supreme Court sided with the homeowners and found the HOA’s justification for the seasonal guidelines was not reasonably related to any restrictive covenant and their enforcement was, therefore, arbitrary, capricious and unreasonable. The Court noted that restrictive covenants are to be construed most strictly against the grantor and persons seeking to enforce them, and substantial doubt or ambiguity is to be resolved in favor of the free use of property and against restrictions. The Court found none of the covenants in the declaration could be construed to authorize the seasonal guidelines. The only restrictive covenant that directly referenced exterior lighting was inapplicable because it merely prohibited directing exterior lighting outside the boundaries of the lot and causing any adverse visual impact to adjacent lots, whether by location, wattage or other features. The seasonal guidelines did not mention “adverse visual impact” and did not regulate location, wattage or other features. The seasonal guidelines only regulated the dates and number of days during which the residents may display decorative lighting. The Court concluded the seasonal guidelines exceeded the scope of the exterior-lighting covenant.

Both parties incurred far more in attorneys’ fees and costs than the $900.00 imposed by the HOA before the case was finally concluded. At the trial court level, the HOA had incurred approximately $40,000.00 in attorneys’ fees and costs to fight over two strings of lights it did not have the authority to regulate. For further information or questions, please contact Nicole Graham at [email protected].

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].