Roseman & Antoni, LLP
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Roseman & Antoni, LLP
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Legislative Update January 2006 Several bills affecting community associations were signed into law by Governor Schwarzenegger. Unless otherwise indicated, these laws became effective January 1, 2006. A. SB 137 Newly added Civil Code Section 1367.4 applies to assessments arising on or after January 1, 2006 and defines the circumstances under which judicial or nonjudicial foreclosure may be used to collect delinquent assessments. Assessments Less Than $1800. Associations may no longer collect delinquent assessments less than $1800, not including late charges, fees, costs, etc., through judicial or nonjudicial foreclosure. Associations must instead file a small claims action. Associations can also record liens on owners’ separate interests upon which associations cannot foreclose until: (a) the amount of the delinquent assessments secured by the lien, exclusive of late charges, fees, costs, etc., exceeds $1800, or; (b) the assessments are delinquent for more than twelve (12) months. Prior to recording such a lien, associations must offer to engage in alternate dispute resolution ("ADR") with the owner. Assessments Greater Than $1800 Or Delinquent For More Than Twelve (12) Months. Associations may use judicial or nonjudicial foreclosure to collect assessments which are greater than $1800 or which have been delinquent for more than twelve (12) months, provided that various notice and other requirements are fulfilled. Offer To Participate In Alternative Dispute Resolution. Prior to initiating foreclosure, associations must now offer to participate in ADR with delinquent owners. Board Must Approve Decision To Foreclose. The decision to initiate foreclosure must now be made by an association’s board of directors. Such decisions can no longer be delegated to third parties such as property managers. A decision to foreclose must be made in an executive session and the vote must be recorded in the minutes of the next open meeting. When the vote is recorded, the board must maintain the confidentiality of the owner by identifying the matter by the parcel number of the property, rather than by the name of the owner. Assessments Arising Before January 1, 2006. Civil Code Section 1367.1, which applies to assessments arising before January 1, 2006, has been revised. Prior to initiating a foreclosure, associations must now offer to participate in ADR with delinquent owners. Additionally, the decision to record a lien must be made by a board of directors at an open meeting with the vote reflected in the meeting minutes. On-line Education For Boards Of Directors. Newly added Civil Code Section 1363.001 provides that, funds permitting, the Department of Real Estate and the Department of Consumer Affairs shall develop an on-line education course for the board of directors of an association regarding the role, duties, and responsibilities of board members and prospective board members, the pertinent laws, and the nonjudicial foreclosure process. B. AB 61 Newly added Civil Code Section 1363.03, effective July 1, 2006, contains a plethora of new procedures associations must follow when holding elections. Civil Code Section 1363.03(a) requires associations to adopt rules which are consistent with these new requirements. The new requirements include: Equal Access To Association Media/Common Area Meeting Space. If any candidate or member advocating a point of view is provided access to association media, newsletters, or an association website during a campaign, equal access must be provided to all candidates and members advocating a point of view reasonably related to the election. The association cannot edit or redact such communications, but can include a disclaimer stating that the candidate or the member, and not the association, is responsible for the content of the message. Associations must also provide equal access to any common area meeting space, to the extent that such a space exists, to all candidates and all members expressing a point of view reasonably related to the election. Specification Of Qualifications For Candidates And Voting. Associations must specify the qualifications for candidates for the board of directors and the procedures for nominating candidates. Associations must also specify the qualifications for voting, the voting power of the membership, the use of proxies, and the times at which polls will open and close. Procedure For Selecting Election Inspectors. Associations must specify the method by which an election inspector or inspectors will be chosen. Between one and three inspectors may be appointed. Inspectors can be appointed by the board, elected by the members, or chosen in some other way. Inspectors may be members of the association but cannot be members of the board. Unless the association’s rules specifically authorize such a practice, neither an association’s employees, or anyone who is under contract to the association for any compensable services (such as property managers), can serve as election inspectors. Secret Ballot. Board elections must now be held by secret ballot, as must votes on assessments, amendments to the governing documents, and grants of exclusive use of common areas. Functions Of Election Inspectors. Election inspectors will be responsible for determining the voting power of the membership, determining the authenticity of proxies, receiving ballots, hearing and determining challenges and questions relating to the vote, tabulating the votes, determining when the polls close, and determining the results of the election. Votes must be counted and tabulated at a properly noticed open meeting of the board. Proxy And Ballot Procedures. Associations must comply with numerous provisions relating to the use of proxies and ballots designed to ensure the secrecy of ballots. For example, ballots must now be delivered to members at least thirty (30) days prior to the deadline for voting. Additionally, ballots cannot be signed by voters. Ballots must be inserted in a sealed envelope and then inserted into a second sealed envelope, the cover of which contains the voter’s information. C. AB 1098 Enhanced Access To Association Documents. Effective July 1, 2006, Civil Code Section 1365.2 will be replaced with a greatly revised version of this section. Under the old version, association members were entitled to inspect an association’s "accounting books and records and minutes of proceedings . . . " The new version of Section 1365.2 gives members a right to inspect essentially all of the association’s documents. Documents that association must make available to members include financial statements, balance sheets, income and expense statements, budget comparisons, general ledgers, contracts, written board approvals of vendor/contractor proposals and invoices, tax returns, agendas and meeting minutes of any board, member, or committee meetings, check registers, invoices, receipts, cancelled checks, purchase orders, credit card statements, and reimbursement requests. Members may also request membership lists, as long as certain procedures are followed. Members can "opt out" of sharing their names with fellow members if they notify the association in writing that they prefer to be contacted via the alternative process described in Section 8330 (c) of the Corporations Code. Redaction Of Confidential Information. Associations may withhold or redact documents requested by members for a variety of reasons, including that the disclosure of that information would be reasonably likely to lead to identify theft or fraud or would reveal privileged or private information. Time Periods For Which Records Must Be Made Available/Time To Comply With Request. Association records must be made available for the fiscal year and the previous two years. Minutes of member and board meetings must be made permanently available. Minutes of member and board meetings must be made available within thirty (30) calendar days of the meeting. Association records prepared during the current fiscal year must be made within ten (10) business days of a request. Records for the prior two years must be made available within thirty (30) calendar days of the request. Grants Of Exclusive Use Of Common Areas. Newly added Civil Code Section 1363.07 defines the circumstances in which an association’s board can grant exclusive use of a common area to a member. Unless the association’s governing documents specify a different percentage, such exclusive use cannot be granted unless the grant is approved by members owning at least sixty seven percent (67%) of the separate interests. Before voting on such a transfer, the membership must be advised whether the association will receive any monetary consideration for the grant and whether the transferee will be responsible for providing insurance coverage for the exclusive use common area. Civil Code Section 1363.07 sets forth numerous exceptions to the foregoing rule. The approval of the membership is not required if the conveyance is to: (a) the subdivider and is consistent with a detailed phased development plan submitted by the developer to the Department of Real Estate ("DRE") with the application for a public report or which is in accordance with governing documents approved by the DRE; (b) eliminate or correct engineering errors in documents filed with the county recorder or a public agency or utility; (c) eliminate or correct encroachments caused by construction errors; (d) permit changes in the plan of development submitted to the DRE as a result of topography, obstruction, hardship, aesthetic considerations, or environmental conditions; (e) fulfill the requirements of a public agency, and; (f) transfer the burden of managing and maintaining an area generally inaccessible and not of general use to the membership. Membership approval is also not required when the grant is made in connection with an expressly zoned industrial or commercial development. NOTES _____________________________________________________________________________________ _____________________________________________________________________________________ Roseman & Antoni, LLP, is a full service law firm representing common interest developments, including homeowners associations and property management companies. Our services include: Enforcement of Governing Documents Contract Negotiations, including Construction and Maintenance Agreements Lender/Developer Liability Alternative Dispute Resolution Creation and Amendment of Governing Documents, Interpretation of CC&Rs, By-laws, and Rules and Regulations Construction Defect Litigation Earthquake Claim Negotiation and Litigation Main Office 10940 Wilshire Boulevard Eighteenth Floor Los Angeles, California 90024 (310) 208-7400 tel (310) 208-7707 fax www.raattorneys.com or e-mail us at: info@raattorneys.com Other Contact Numbers: Orange County (949) 756-2700 tel (949) 756-2710 Las Vegas (702) 385-6800 tel (702) 385-6801 fax
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