I have been receiving a number of calls from clients relating to reports of sex offenders in the neighborhood For your information, the California Apartment Association is seeking assistance from the legislature because of a conflict in the law that affects apartment owners, and could very well affect homeowner associations. Governor Schwarzenegger signed a bill last year, AB 488, expanding the scope of Megan's Law by requiring information about sex offenders to be made available on the Internet Because of this easy access, there is heightened public interest and awareness relating to sex offenders in the neighborhoods. Association managers and boards of directors are receiving calls from homeowners who have discovered there is a sex offender in the common interest develop-ment. Often times, that homeowner wants the association to publish the information to all of the owners in the development and warn them However, there is state law in effect that forbids rental property owners to use Megan's Law to discriminate against the offenders, and so it seems that there is a potential for homeowner association liability based on publishing information that could be perceived as discriminatory. In addition, any widespread publication of information like this could conceivably decrease property values. It could make the sex offender a target from other people in the neighborhood. In similar situations in the past, neighbors have been warned that if they picket the offenders home, or try to make their lives miserable, the Megan's law disclosures may be amended in the future to offer more protection to the registered sex offenders.

Its a "Catch-22" situation for Hosanna. If you need advice relating to this kind of question, please contact legal counsel. There are problems with publishing specific information about sex offenders, but there are other ways to assist owners in the development in understanding a possibility of a threat in the neighborhood, and caution should be taken. The law relating to landlords subjects them to a $25,000 fine if they deny access based on the Megan's Law list, or even warn other residents about the offender's presence. These same punishments might be extended to associations. HOAs have been found to stand in the shoes of a landlord in certain California cases discussing liability. And furthermore, an association may end up with a breach of fiduciary duty claim if it notifies residents in the association of the sex offender's presence, and some owner is unable to sell their home because of it. An HOA can also be sued for failure to warn of a hazard. The difficulty is correctly balancing the responsibility v. the risk, and that should be discussed with legal counsel. The apartment association is looking for the legislature to clarify responsibility and resolve the conflict. I will be following this process to see if there is any legislated relief.

Alas, all is not lost. There have been some recent news reports about a case in Santa Barbara where a court upheld $277,000 in fines imposed by a homeowners association against an owner. The owner was described as "the neighbor from hell". Ever had one of those? The person had continuing, multiple rules violations. They included things like: blocking horse trails, putting screens around his property, and installing flood lights which caused the "parking lot" or "ballfield" look on the property.) [Does this sound like paranoid behavior?

The Owner refused to comply with the association's rules, and the board fined him $100 per day. This was the first time out of the chute for this association as for fining. As you can probably imagine, the Board was at its wit's end with this Owner. Luckily (and probably quite justifiably), the court said:

"Hope Ranch did not abuse its discretion in finding continuing violations of the building guidelines or in imposing monetary penalties against [the owner] until such time that [the owner] demonstrated that the violations had been cured. Despite warnings and extensions of the correction or abatement periods, defendants delayed, failed to respond and have their own intransigence to blame for the large amount of the accumulated penalties.

. . . [the] Board acted upon reasonable investigation, in good faith, with regard to the best interests of the Association, and not in an arbitrary manner and its actions are entitled to deference ... The amount of $277,000 as a monetary penalty is not unreasonable on its face given the contribution of [the owner's] own actions and inactions to the amount of the penalty ... The monetary penalties ... were not impermissibly punitive because [the owner] could have prevented the imposition of damages by simply curing the violations and providing evidence to Hope Ranch in a timely manner showing that the violations had been cured."

This case provides hope; it illustrates that courts are willing to uphold fines when boards act reasonably in enforcement options.

It would really be nice if CLAC had good news to bring you. Even "half ­ bad" news might be good news in the current climate in Sacramento. We're not talking about the weather. The legislators are poised once again to dump onerous, micromanaging legislation on homeowner associations in California. Read on.

- SB 61 Battin - Elections: this bill would require that elections within a CID be held by secret ballot. It applies to elections for special assessments, amendments to the governing documents, board elections or any grant of exclusive use of common area property. The bill requires that a CID select an independent third party as an inspector of election who would be given powers to oversee the elections. The secret balloting process required provides for a double envelope system for voting by mail. It provides for a civil penalty of up to $1000 per violation. It is tied to AB1098 -- see below. The inspector would determine the memberships entitled to vote, the voting powers of each; would determine the authenticity, validity, and effect of proxies; receive the ballots; determine all challenges and questions arising out of the election; determine when the polls shall close; and determine the results of the election. The problem of course is that if associations have to have ballots returned and counted outside of the association for any election for special assessments, rehabilitation project that involves special assessments, or amendment of the governing documents, it will be difficult to engage in any sort of an aggressive campaign to get the membership to wake up and vote! The Board of Directors' hands will be tied in terms of follow up. And, if the association is required to hire an inspector every time a vote is taken, that could get costly.

- SB 186 Battin - Elections: This bill limits any association's ability to expend the funds of the association to promote, advocate for the election or defeat of any candidate that is on the association election ballot. In addition, it allows for a member to bring a civil suit asking for declaratory or equitable relief (e.g., court order or court interpretation) plus a fine of $1000 for each violation, which may be brought in Small Claims Court if the demand does not exceed $5,000. It allows all owners equal access to association facilities and funds in the election process.

-AB 1098 Jones - Elections and Records Inspection: this bill is long, onerous, and quite unbelievable. Some of the biggest problems with it are that it would require an association to make available, for inspection by members, on the site of the association, "association records" for the past six years. If the association cannot make the records available on site, it is required to copy them, at no charge to the member. The definition of records that would be subject to inspection is greatly expanded from what anyone has yet interpreted the prior language to be. The records subject to inspection would include accounting books and records, agendas and minutes of meetings or other proceedings, signed contracts, invoices, receipts, check registers, canceled checks, purchase orders, credit card statements and reimbursement requests, etc. It's tough to go on but the bill does. CLAC has presented a list of 72 questions to be answered and has presented a matrix pointing out several problems and concerns.

It's critically important to know what is coming in 2006 and so here it is, reproduced in its entirely, the "CLAC CORNER", SEPTEMBER 2005, By Beth A. Grimm, PR Chair

Is it time to laugh or cry, or time to rise to the occasion? Surely, we can pull something good at this year. You can bet that at our annual planning session this fall, we will be working on what we hope will become a massive grassroots effort. A lot of time and energy was spent this year attempting to negotiate deals with legislators. Sometimes that's just what you have to do. Especially, when the offensive subject matter is so highly applauded by legislators and the press, that you have to step lightly, even when carrying a big stick.

Each and every volunteer of CLAC that participated in discussions, conference calls, face-to-face meetings, and votes on bills, should be given a pat on the back. And the biggest Kudos go to our advocate Skip Daum for hanging out in the "the trenches". This is a nice way of describing the halls of the capital in Sacramento. Besides dealing with unpopular positions (given that legislators just do not seem to understand the practical side of things) and bad press (given that reporters seem to be able to make a sow's ear out of a silk purse), Skip had to deal with late-night hearings, last-minute changes, amendments after amendments, promises after promises, and the general BS that goes along with introduction and passage of legislation in the state. It would be nice if each of the legislators could spend a day, week, or year, trying to run a homeowners association. Surely, that would change their thinking.

That said, it's time to rise up and move forward.  A number of bills made it to the Governor's desk, not the least offensive of which include AB 1098 and SB 137. We can take a bow along with other organizations for holding back the line on SB 137 and AB 1098. Both of these bills will, no doubt, result in extra costs and delay assessment collection for many associations. However, the good news is, that they will not cripple the majority of associations in California. Smaller associations, self-managed associations, and associations with minimal annual assessments may disagree, but the truth is, we did the best we could.

Here's the scoop on the two biggest bills, which CLAC opposes in their present form, but thanks to due diligence, could have been much worse and indeed were in previous versions of the bills.

AB 1098 Jones - Records Inspection and Common Area Transfers: this bill is still long, onerous, and difficult for associations to swallow. The costs are likely to be high. Recall in the last corner that we pointed out that in its prior form it would have required an association to make available, for inspection by members, on the site of the association, "association records" for the past six years. At least, the legislator listened to arguments against such a long period. After all, not even the IRS requires anyone to produce six years worth of records, unless there is a failure to report income, which certainly is not likely to happen in homeowners association since they are nonprofit entities. The statute, in the form that went to the Governor and is expected to be signed provides that records must be produced for the current fiscal year and the previous two fiscal years for inspection and copying by a member of the association, or the member's designated representative. Certain costs are to be paid by the member, but no charges can be made for administrative time to locate and gather the records. Charges of up to $10 per hour up to $200 can be made for redaction of important information that might lead to identity theft, but that is somewhat of a bad joke since the average board member might get into considerable trouble trying to determine what legally should and should not be removed from the records. And of course, there is little chance any association is going to find a trained professional (manager or attorney) that will take on the responsibility and liability exposure for redacting important records for $10 an hour. But, be that as it may, there are just some things we have to live with. The bill would require the association to make the records available within 10 business days of receipt of the request for current association records or 30 calendar days of receipt of the request for association records prepared during the previous 2 fiscal years.

The bill would specifically authorize a member to bring an action to enforce his or her right to inspect and copy association records in small claims court if the amount demanded does not exceed the jurisdiction of that court. The bill would also authorize the court to assess a civil penalty of up to $500 for the denial of each separate written request.

If the association cannot make the records available on site, it is required to copy them, at cost to the member. The definition of records that would be subject to inspection is greatly expanded from what most interpreted the prior language to be. The records subject to inspection would include accounting books and records, agendas and minutes of meetings or other proceedings, signed contracts (that are not privileged under the law), invoices, receipts, check registers, canceled checks, purchase orders, credit card statements and reimbursement requests, etc. The bill requires an association to provide the membership list to requesting owners but thanks to the objections raised about privacy issues by CLAC and others, members can opt out of having their name and address, etc. distributed by making other arrangements to receive information from owners entitled to the lists.

As for grants of common area, unless the Association governing documents requires a different percentage, the bill requires an affirmative vote of the members owning at least 67% of the voting power of the separate interests in the association to grant exclusive use of  any portion of  a common area to any homeowner member. There are some exceptions for things like correcting engineering errors, granting property back to a subdivider to enable completion of the development, etc.

Furthermore, this bill is directly tied to SB 61 (Battin) (Elections), which provides:

SB 61 would require that an association adopt rules, pursuant to specified procedures, to provide equal access to various association media as part of election campaigns, as specified, and to establish qualifications for candidates and voting, as specified. The bill also requires that elections within a common interest development regarding assessments, selection of members of the association board of directors, amendments to the governing documents, or the grant of exclusive use of common area property be held by secret ballot. The bill requires that a common interest development select an independent 3rd party, as specified, as an inspector of election, who would be granted specified powers, for these elections. The bill requires that ballots and two preaddressed envelopes with instructions on how to return ballots be mailed to each member at least 30 days prior to the deadline for voting, and that votes be counted and tabulated by the inspector in public at a noticed meeting. The bill would establish additional procedures for storage and review of election results. The bill would prohibit association funds from being spent for campaign purposes, as specified, in connection with an association board election or in connection with any other association election, except as specified. The bill would permit a member of an association to bring a civil action for violations of these provisions, and other provisions regarding open meetings, by his or her association, and would impose a civil penalty of up to $500 per violation. SB 61 becomes operative only if AB 1098 is enacted.

SB 137 Ducheny -- Collections and Lien Process: This bill has not gone away. It may impair the ability of associations to get homeowners to pay their assessments on time. It provided for a $2,500 minimum delinquency, including only assessments, before an association could actually initiate foreclosure on a unit. However, CLAC and others negotiated that amount down to a standard of $1,800 or one year of delinquency, whichever comes first. And the lien process was not impaired, meaning that when an owner is delinquent in paying assessments, a lien can be recorded according to the Association's collection schedule; however there is a new caveat. Prior to recording a lien for delinquent assessments, an association must offer the owner and, if so requested by the owner, participate in "internal" dispute resolution pursuant to the association's "meet and confer" program required by Civil Code Section 1363.810. And prior to initiating a foreclosure for delinquent assessments, an association must offer the owner and, if so requested by the owner, shall participate in dispute resolution pursuant to the association's "meet and confer" program required by Section 1363.810, or offer alternative dispute resolution with a neutral third party pursuant to Civil Code Section 1369.510. The decision to pursue dispute resolution or a particular type of alternative dispute resolution shall be the choice of the owner, except that binding arbitration shall not be available if the association is going to pursue judicial foreclosure.

Usually, appearances in small claims are limited to a party which for a corporation (like most HOAs) would be an employee or shareholder. However, there is a specific section for HOAs which allows for the Association to designate an agent, a management company representative, or a bookkeeper to appear on behalf of that association. It is important to keep in mind that there is still a requirement for small claims that any individual who is appearing as a representative of a the Association must file a declaration stating (1) that the individual is authorized to appear for the Association, and (2) the basis for that authorization.

Under this bill, the itemized statement of the charges owed by the owner must be recorded together with the notice of delinquent assessment (lien) which may be misleading because the liens are ongoing and continuing, accruing as time passes and additional delinquent amounts fall due. It applies to liens recorded after January 1, 2006.

The bill previously provided for a minimum bid at 65% of the appraised value of a unit. This was a "kicker" as it would have chilled most if not all Association sales for assessments. However, CLAC and others negotiated the elimination of this requirement. The bill still directs associations into small claims court for collection remedies, which is quite a burden. The bill allows homeowners to request ADR for a collection matter.

Last but not least, the sale of a unit for delinquent assessments is subject to the right of redemption within 90 days after the sale.

SB 186 Battin, reported on a month ago ­ turned into a state highways bill.

In order to receive regular updates, all you need to do is give a little. A "Buck a Door" per HOA is recommended and would be very helpful to our efforts. All delegates on CLAC are volunteers (except for the Legislative Advocate) and we exist and are sustained only with the help of monetary contributions. Please consider making CAI-CLAC a budget line item in your association's budget this year.

AB 1098 was signed into law and its terms commence July 1, 2006. It defines association records that are subject to inspection much more broadly than is practical. It creates some references to the Corporations Codes records inspections statutes on the one hand and preempts these same codes on the other hand. Like all other legislation that passed this year, it will present some unrecoverable costs for HOAs (and by the trickle-down process), the owners who live in them. The records subject to inspection date back in some cases three years (yes, three years, and believe it or not that is a good thing considering that earlier machinations of the bill required Associations to provide six years' worth of records!). I am doing a 3 part FYI on this Bill to provide its full impact. This is Part I. There are two types of records described. "Association Records" and "Enhanced Association Records" (which are those that will require some type of redacting).

Under the new Civil Code Section 1365.2, records subject to inspection include:

"Association records" include:

Any financial document required to be provided to a member in Section 1365.

Any financial document or statement required to be provided in Section 1368.

Interim unaudited financial statements, periodic or as compiled, containing any of the following: balance sheet, income and expense statement, budget comparison, general ledger (a report that shows all transactions that occurred in an association account over a specified period of time), all of which are prepared in accordance with generally accepted accounting principles.

Executed contracts not otherwise privileged under law.

Written board approval of vendor or contractor proposals or invoices.

State and federal tax returns.

Reserve account balances and records of payments made from reserve accounts.

Agendas and minutes of meetings of the members, the board and any committees appointed by the board of directors; excluding, however, agendas, minutes, and other information from executive sessions of the board of directors as described in Section 1363.05.

Check registers.

Membership lists, including name, property address, and mailing address, are subject to inspection and copying  if certain conditions are met by requesting member of Association. Owners have an "opt out" option if they do not want their information given out this way. See the statute for more details. 

"Enhanced Association Records" means invoices, receipts and canceled checks for payments made by the association, purchase orders approved by the association, credit card statements for credit cards issued in the name of the association, statements for services rendered, and reimbursement requests submitted to the association, provided that the person submitting the reimbursement request shall be solely responsible for removing all personal identification information from the request.

In the next two FYIs, I will describe the timelines for returning records, recovery of costs (limited as it is) and redacting guidelines.