The Volunteer

 Source: Adrian J. Adams Es
QUESTION: Ours is a 60-unit HOA. One resident has served many years as a board member, president, and rule-enforcer. She helped newcomers and everyone with all manner of issues and problems. While president she oversaw the expenditure of hundreds of thousands of dollars to restore the property after years of neglect.

A succession of community managers and vendors came to rely on her to be available, 24/7, for assistance and action. Even though she is no longer on the board, she is our institutional historian. Many consider her the go-to person. 

So, what’s the problem? She interferes with operations by telling vendors what to do or not do, delivering rules to residents who violate them, refusing to turn over keys to display cases, etc. What can be done to keep the good and stop the bad?

RECOMMENDATION: Someone who has worked that hard for the community has a sense of pride and ownership in the development. When that happens, it is sometimes hard for them to let go of direct involvement. A couple of board members should take her to lunch for a gentle conversation. Her years of service have earned her deference and praise. Let her know that her actions, while well-intentioned, create potential liability. Tell her you want to protect her from harm she may unintentionally cause herself and the association. Hopefully, that will eliminate the unwanted behavior and preserve the good. 

Architectural Control

Source: Adrian J. Adams Esq. 

QUESTION: Could you address the issue of exterior architectural control differences with a PUD and a condominium? For example: can a PUD (townhouse style) specify the windows, garage doors and front doors used in an upgrade?

ANSWER: The architectural issues between condos and PUDs are significantly different.

Condominiums. Condos care about alterations inside your unit because everything surrounding your cube of air is owned in common. That means you cannot change the structure without first getting the association’s permission. Alterations to plumbing and electrical lines are also restricted because they can dramatically affect neighboring units. Thus, it requires approval by the association. 

Planned Developments. Planned developments generally don’t care what you do inside your house. Instead, they care a great deal about exterior appearances. As a result, they regulate the color of paint you use, your fences, doors, windows, garage doors, landscaping, tree houses, and anything else that can be seen from the street or by your neighbors.

Hybrids. Townhouse developments can be a bit confusing. A townhouse is a form of construction not a form of ownership. Townhomes can be legally structured as condominiums or as planned developments. If structured as condominiums, homeowners might own air space or the entire structure depending on how it is defined. Similarly, maintenance might be defined  narrowly or expansively. It is not uncommon for a homeowner to own the structure but the association to be in charge of painting and roof repairs. 

Whether a townhouse is defined as a condominium or single family home, the exterior of the structure is controlled by the association. In all cases, the association can specify the type, color and quality of windows, garage doors and front doors used by homeowners when they upgrade.

RECOMMENDATION: If your association has not already done so, it should develop a maintenance chart in addition to clearly defined architectural standards so there is no confusion over what owners are responsible for and what they can and cannot do regarding improvements.   

Protecting Association Deposits

Source: Adrian J. Adams Esq.

On occasion, we get to cover more complicated subjects in our newsletter. This is one of them.

Wall Street Reform. Following the collapse of the economy in 2008, Congress rushed through a bloated piece of legislation known as the Dodd-Frank Wall Street Reform Act, sometimes referred to as “Dodd-Frankenstein.”

Massive Bill. The extent of the legislation was unprecedented. As the Economist Magazine* noted, “The law that set up America’s banking system in 1864 ran to 29 pages; the Federal Reserve Act of 1913 went to 32 pages; the Banking Act that transformed American finance after the Wall Street Crash, commonly known as the Glass-Steagall Act, spread out to 37 pages. Dodd-Frank is 848 pages long.”

Associations Affected. The Economist described the reach of Dodd-Frank over the economy as one that affects “veterans, students, the elderly, minorities, investor advocacy and education, whistle-blowers, credit-rating agencies, municipal securities, the entire commodity supply chain of industrial companies, and more.” To the “and more” we can add homeowner associations.

Bail-In Provision. When the economy collapsed, the Federal Reserve used taxpayer money to bail out distressed banks that were deemed “too big to fail.” Dodd-Frank now prohibits the Fed from providing emergency funds to failing banks. Instead, distressed banks must rely on depositor funds. This is known as the “bail-in” provision. It requires banks with assets of $50 billion dollars and more (BofA, JPMorgan Chase, Union Bank, Wells Fargo, etc.) to take depositors’ money to offset losses. 

Seize Your Money. In other words, if the bank suffers losses from risky investments, it can use depositors’ money (from checking accounts, CDs, money market funds, IRAs, etc.) to cover its losses. It can bail itself out by seizing your money. Previously, banks were obligated to return your money upon demand. Now, under Dodd-Frank, you might get a share of stock in the bank instead of cash.

FDIC Insurance. Even though depositor accounts are insured by the FDIC for $250,000.00 for each depositor, the FDIC has only $67 billion in their fund to resolve account problems. The FDIC has a credit line of $511 billion with the Treasury which can be used as well. Unfortunately, derivative losses could be in the trillions of dollars. That means there will be no money to protect depositors.

Election Issue. Banking industry regulation has become a political issue between candidates Bernie Sanders and Hillary Clinton. They have clashed repeatedly on this issue in their recent debates. Bernie Sanders wants to reinstate Glass-Steagall, which was repealed by President Bill Clinton and was a factor in the collapse of the U.S. economy. Both candidates want to increase banking regulations, which could further impact an association’s deposits.

RECOMMENDATION. For associations who are risk-averse, they should consider moving their funds to smaller local banks and credit unions. To avoid the bail-in provision, the institutions should be smaller than the $50 billion dollar asset limit set by Dodd-Frank.

Thank you to Ted Loveder CMCA AMS PCAM for the genesis of this article. Ted manages one of the many highrise condominium associations we represent. Ted is part of a growing pool of talented and credentialed managers in our industry.

*The Economist, Feb 18th 2012.

Guest Speakers In The Minutes

Source: Adrian J. Adams Esq.

QUESTION: When a non-member is invited to talk to the community about projects or other items of interest, should he/she speak before the meeting is called to order? Since HOA meetings are for members only, shouldn’t the board ask any person who is not a member to ES leave?

ANSWER: You’re misreading the statute. It does not prohibit non-members from attending meetings. Rather, it confers rights on members to attend. (Civ. Code §4925(a).) Others can attend at the pleasure of the board.

Spouses, Staff & Others. Although boards can prohibit non-members, that is not the industry standard. It would be unusual to prohibit managers, support staff, and legal counsel since they assist boards in carrying out their duties. In addition to managers and staff, most boards allow spouses and renters to attend meetings and speak during open forum.

Agenda. There is nothing wrong with putting guest speakers on the agenda, calling the meeting to order and recording in the minutes that the person spoke on a particular issue. It may be important to show the board’s due diligence. It also helps keep the membership informed. The Secretary should not transcribe the speech in the minutes–only record who spoke and the topic.

RECOMMENDATION: Don’t tie your hands with a strict prohibition on non-members. First, boards need the assistance of staff and others for their meetings. Second, spouses and renters aren’t all bad. Some of them are actually interested in the well-being of the community and can be helpful. 

No Agenda Posted

Source: Adrian J. Adams Esq.

QUESTION: Recently, when posting notice of an upcoming board meeting, the agenda for that meeting was not included. Our president said it was okay because the agenda was emailed. Is that correct?

ANSWER: Sorry, it’s not correct. Starting January 1, 2008, board meeting agendas must be posted along with the notice of meeting. (Civ. Code §4920.) In the alternative, the notice and agenda can be delivered to everyone. (Civ. Code §4920.)

Email. Emailing the agenda is an option only if the recipients consent in writing to receiving notice via email. (Civ. Code §4040(a)(2).)

RECOMMENDATION: Sending agendas and notices by email makes a lot more sense than only posting in the common areas. Emails reach more people, especially those who are out of town or live elsewhere. Associations that want to save money and keep members better informed should get owners’ email addresses and written consent to send notices. By “notices” I mean more than just board meetings. There are a great many disclosures and notices that associations must give members each year.