SUMMARY OF NEW LEGISLATION AND CASE LAWDrew Hendricks
SUMMARY OF NEW LEGISLATION AND CASE LAW
Mark T. Guithues, Esq.
Laurie F. Masotto, Esq.
Michael J. Alti, Esq.
Mark Allen Wilson, Esq.
Jeffrey W. Speights, Esq.
Tracy Linkowski, Esq.
Thank you for trusting our firm with your community association’s legal needs. Because of you, CLA is growing! Please join us in welcoming Laurie Masotto Esq, with 25 years’ experience as a HOA attorney; Tracy Linkowski Esq, with 20 years HOA of HOA experience, and Jeff Speights Esq., a 10 year litigation attorney. CLA is better because of the knowledge and experience of these dedicated industry veterans.
We prepare this Summary of New Legislation and Case Law to help you understand the newly enacted or interpreted laws, and how to best apply them this coming Monday morning. THE FIRST THREE BILLS REQUIRE IMMEDIATE ACTION – SO PLEASE PUT A COPY OF THIS IN YOUR BOARD’S NEXT MEETING PACKET AND ON YOUR NEXT AGENDA.
- NEW LEGISLATION
- SB 323: NEWLY REQUIRED ELECTION RULES AND PROTOCOLS
As noted above, SB 323 is the new law of the land when it comes to association elections, significantly impacting the notice requirements, timing and process for holding all residential homeowner association elections (except delegate and commercial elections).
THE BIG PICTURE: NEW NOTICE AND ELECTION TIMELINE:
150+ days prior to election: Board approves new Election Rules for distribution to members
120+ days prior to election: Board adopts new Election Operating Rules
90+ days prior to election: (1) Mail Election Rules and Request for Candidate Nomination
(2) Select Inspector of Election (hereinafter the “IOE”)
60+ days prior to election: Mail new “Candidate Introduction Letter”
30+ days prior to election: Mail election materials (notice, agenda, ballot, envelopes)
Day 0 – Election Day: Confirm quorum and tabulate votes
- The New Law Requires You To Pass These NEW Candidate Qualifications:
- Non-Members (except developer representatives) may not be nominated.
- All other election qualifications contained in your Bylaws and CC&Rs are invalid.
- The Law ALLOWS You to Pass these NEW Candidate Qualifications (and You Should):
- Members are disqualified from both nomination and from service on the Board for failure to be “current” in payment of regular and special assessments. (A person cannot be disqualified for unpaid fines (including fines renamed as assessments, i.e., reimbursement assessments), collection charges, late charges, or costs levied by a third party. The member is “current” if the person paid the assessment under protest, has entered into a payment plan and/or has not been offered an opportunity to engage in internal dispute resolution (IDR).)
- Members are disqualified from nomination as a candidate if the person, if elected, would be serving on the Board at the same time as another joint owner of the same separate interest.
- Members are disqualified from nomination who have owned less than one year.
- Members are disqualified from nomination if they disclose, or if the association becomes aware of, a past felony record which would result in the cancellation of or inability to obtain the association’s fidelity bond/crime/dishonesty coverage.
- Candidates must self-nominate, or be nominated, in response to the initial Request for Candidates and are therefore disqualified after the nomination cut-off including at the floor of the membership meeting.
- The New Law Also Implements These Requirements (Put Them In Your Rules Too!):
- Ballots shall be provided a representative of every unit, including a person with a general power of attorney for the owner of a separate interest, a trustee, a designated representative of a LLC, or such. (Regardless of Eligibility!)
- The Inspector of Election (hereinafter the “IOE”) shall deliver, or cause to be delivered, at least 30 days prior to the election, the ballot and the election rules. (Election rules may be distributed by posting to a website if it is disclosed, in at least 12 point font, that “The rules governing this election may be found here.”) Note that if an owner requested individual notice, they must receive this via mail.)
- The New Law Requires Distribution of a Pointless NEW NOTICE:
At least 30 days prior to the distribution of ballots, the association must provide the Notice of Meeting, Ballot Deadline, Candidate Registration List, and Right to Verify Member Information (We’re calling this the “Candidate Introduction” Letter), including the following:
(1) The date and time and the physical address where the ballots are to be returned by mail or handed to the IOE
(2) The date, time and location where the ballots will be counted
(3) The list of all candidate names that will appear on the ballot (“Candidate Registration List”)
(4) This Candidate Introduction Letter must also include the following statement: “Members are invited to contact the association to verify their member information on both the Candidate Registration List and the Voter List within the next 30 days. The IOE will correct same within two business days of notice of the change.
(Note that if an owner requested “individual” notice, they need to, again, be mailed these notices individually.)
- The New Law Slightly Revises The Inspectors (“IOE’s”) Qualifications and Obligations.
You know the drill: IOE’s determine the number of memberships entitled to vote and the voting power of each; determine the authenticity of proxies, if any; receive ballots; hear and determine all challenges and questions arising out of the right to vote; count/tabulate the votes; determine when polls close; determine the tabulated results of the election; and, of course, perform all these acts with fairness to members and in accordance with codes and governing documents. In order to accomplish all this, IOE’s may appoint and oversee helpers to verify signatures and tabulate votes after confirming those volunteers are themselves independent third parties. Here’s what’s new:
- Who Will Serve as IOE? Last year, association managers or attorneys could act as IOE if allowed in the election rules. Now no rules can be passed authorizing such persons to serve as IOE, so associations must hire or use a professional IOE, a volunteer poll worker with the county registrar of voters, an accountant, a notary public, or an association member (not a director, candidate nor related thereto).
- IOE’s Must Fix Association Records. Association’s have always permitted members to verify their individual information on election records, but now owners must be expressly provided this right at least 30 days before the distribution of the ballots and reported errors must be corrected BY THE IOE within TWO BUSINESS DAYS.)
- IOE’s Will Retain Election Materials (MAYBE). “Election Materials” are now part of “Association Records” which can be requested for inspection by members. This includes the (1) candidate registration list, (2) voter list of names, addresses of the physical separate interest or parcel numbers and voters to whom ballots were sent; (3) returned ballots; (4) signed voter envelopes; and (6) proxies. THE IOE must retain these records at an (IOE) designated location (in their closet, garage, or the Manager’s office?) throughout the one-year challenge period.
Board and Manager IMMEDIATE Action Items:
Failure to implement these new requirements correctly may result in an election challenge and $500 civil penalties.
(a) PASS THE REQUIRED NEW ELECTION RULES ASAP. This includes invalidating your old election rules and reviewing your Governing Documents for provisions that violate the new election law. While the new laws will trump outdated and non-compliant provisions of the governing documents, if such provisions are not amended out now, future Boards and owners will almost certainly rely on those provisions to the association’s peril.
(b) PUT OFF YOUR ELECTION. Do some forward planning and prepare an election timeline, giving five to six months to get all of the new legal requirements implemented.
(c) SELECT THE INDEPENDENT IOE. Ok, you don’t have to do this right away. But you do need to give some thought to it up front because if you are going to put this out to bid by professional IOE’s, it’ll take some time.
(d) REMEMBER THE NEW CANDIDATE INTRODUCTION NOTICE. At least 30 days before the election materials are mailed, mail out the Candidate Introduction Letter and have the IOE correct reported mistakes to the membership list (or at least communicate them to management to do so) within two days of receipt of information from members.
- AB 5 – WORKER STATUS: EMPLOYEES AND INDEPENDENT CONTRACTORS
In 2018, the Dynamex Operations West, Inc. v. Superior Court of Los Angeles case (4 Cal. 5th 903) created a legal presumption that workers who perform services for a hirer are employees (for purposes of claims for wages and benefits), unless the worker meets each of the requirements of the 3-part “ABC” test proving the worker is an independent contractor. This is a MAJOR shift. Associations overcome the legal presumption by establishing that the worker is: (A) free from the control and direction of the hiring entity in connection with performance of the work, (B) the worker performs work that is outside the usual course of the hiring entity’s business, and (C) the worker is customarily engaged in an independently established trade, occupation or business. (It’s this last one which is most common.)
Board and Manager Takeaway: Immediately ensure that workers are not misclassified as independent contractors. Improper classification will result in penalties, including but not limited to, additional past wage reimbursements, overtime and benefits. The association will also face penalties to the State Fund Workers Compensation (for its past failure to pay into the fund) and the State and Fed for tax evasion (for failure to pay withholdings.) Consult legal counsel to determine whether workers retained to provide services on an independent contractor basis meet the ABC test requirements and for advice such as restricting use of independent contractors to projects with specified parameters. Note: entering into independent contractor agreements is not enough, you must actually be able to prove the worker is independent.
- ACCESSORY DWELLING UNITS – “Granny Flats, ADU’s and JADU’s”
The Legislature addressed California’s high housing costs by enacting laws encouraging the construction of “accessory dwelling units” (“ADU”) by reducing local zoning and permitting barriers, making it easier for individual homeowners to add such units. Applicable only to houses (not condo’s), this law makes void and unenforceable any CC&R, architectural guideline, etc. prohibiting or unreasonably restricting construction or use of ADUs or “junior accessory dwelling units (“JADU”). Associations may impose “reasonable restrictions” on ADUs and JADUs which do not “unreasonably increase” the cost to construct or effectively prohibit construction of an ADU or JADU, although these terms have yet to be defined in the ADU/JADU context.
ADUs are additional living quarters which are independent of the primary dwelling unit. ADUs may be attached to or detached from the primary dwelling unit, but must provide complete independent living facilities for one or more persons (think bed, kitchen and bathroom.) Depending on your city, ADU’s can be as little as 150 square feet (Sq.Ft”) to as large as 850 Sq.Ft for detached studios and one bedroom units, and up to 1000 Sq.Ft for two or more bedrooms. Conversely, JADUs are no more than 500 square feet, such as bedrooms or converted garages in a single-family home, that have a separate entrance to the outside. JADUs need cooking facilities including a sink and stove, but not a dedicated bathroom.
In addition to AB 670, a slate of companion bills will become operative on January 1, 2020:
AB 68 reduces barriers to construction of ADUs and JADUs ( by specifying size, limiting zoning, limiting owner occupancy/short-term rental and impact fees, and eliminating parking requirements).
AB 587 prohibits the sale or conveyance of an ADU separate from the primary residence while making it clear that rental agreements for such spaces are legal. (It preserves sales of primary residences and ADUs to eligible low-income families that enter joint tenancy agreements with nonprofit corporations (such as Habitat for Humanity.)
AB 671 requires local governments to provide incentives to promote creation of ADUs to promote affordable housing for very low, low-, or moderate-income households. It requires the State to keep a list of existing state grants and financial incentives for ADUs.
AB 881 removes potential impediments to construction of ADUs by: (1) limiting the criteria by which local jurisdictions can limit where ADUs are permitted; (2) by clarifying that ADUs must be ministerially approved if constructed in existing garages; and (3) by eliminating for five years the potential for local agencies to place owner occupancy requirements on the units. The local government procedures and approvals required for ADU applications. The processing time is limited to within sixty (60) days.
SB 13 removes barriers to ADU/JADU construction by reducing or limiting local requirements for locations, sizing, parking, owner-occupancy requirements, approval periods, and impact fees, as specified. For example, local government procedures and approval processing time is limited to within sixty (60) days.
FAQ’s By Boards and Managers:
Can there be Multiple ADUs/JADUs Per Residential Lot? Yes, the ADU laws will allow a combination of units on a single family residential lot, such as one ADU and one JADU. Owners can build several combinations of units, including constructing a detached ADU on the property while converting the garage or other unlivable area into a JADU.
Are CC&R Limits on Garage Conversions Enforceable? The ADU statutes allow garages and other types of conversions of previously unlivable or previously unallowed space into ADUs or JADUs. Once converted, these units are legally rentable.
Can We Enforce Setbacks and View Restrictions? Setbacks are reduced to “no more than four feet from the side and rear lot lines.” If an association’s existing architectural guidelines or other governing documents have more restrictive setbacks, the existing provisions will be void and unenforceable. A question is whether an association will be able to enforce view restrictions, if any, contained in its governing documents. No question that the closer proximity allowed between buildings and property lines will negatively impact community aesthetics and neighbor relations.
Can’t We Require Garages be Reserved for Parking? No, associations cannot require residents to park within garages when they are converting the space. Additionally, where parking structures, such as a garage, are demolished to construct an ADU, the owners are not required to replace those off-street parking spaces. If the local agencies include parking within their ADU ordinances, they cannot exceed one parking space per unit or per bedroom on the lot, whichever is less. This may result in driveway and tandem parking and creation of parking within setbacks, which though aesthetically undesirable, may avoid overcrowding on-street parking. Question whether associations should continue to enforce existing garage parking requirements against those neighbors who did not convert their garages to ADUs.
Can the Association Require Owner Occupied Units and Preclude Short Term Rentals? Yes! The ADU laws specifically allow local agencies to require owner occupancy of either the primary residence or the ADU, and a local agency may also require the applicant to agree to rentals of terms longer than thirty (30) days. We believe this sets precedence that such an association Rule would be enforceable.
IMMEDIATE ACTION ITEMS: Review your current governing document provisions, operating rules, architectural guidelines and other applicable policies for any conflicts with these new laws. Pass immediate Rules which address the appearance of these additions, impacts to parking, owner occupancy requirements, and limits to short term rentals – all without unreasonably increasing the cost to construct or effectively prohibit the owner’s ability to construct and use ADUs or JADUs.
- ENTRY DOORS: DISPLAY OF RELIGIOUS ITEMS: PROHIBITIONS
SB 652 addresses several incidents where a homeowners association reportedly requested residents to remove religious symbols from the entry door or door frame of the resident’s separate interest. These incidents typically involved the Jewish mezuzah which observant Jews are duty-bound to place on the entry door or door frame. SB 652 stops associations from adopting or enforcing restrictive covenants or rules prohibiting the display of religious items (defined as items displayed because of “sincerely held religious beliefs”) on any entry door or entry door frame of a dwelling. The religious display may be as large as 12” x 36”.
Board and Manager Takeaway: Do not adopt and enforce restrictions that prohibit display of religious items on the entry doors or entry door frames unless such display threatens public health or safety, hinders the opening or closing of any entry door, violates any federal, state or local law, contains graphics, language or any display that is obscene or otherwise illegal, or which does not comply with size requirements as specified. Repair or replacement of doors or door frames may require the religious item to be removed, but only while work is performed. Finally, boards and management should review their association’s governing documents to determine whether such restrictions violate SB 652.
- DISCRIMINATION: VETERAN OR MILITARY STATUS
SB 222 prohibits discrimination in housing accommodations based on military or veteran status and adds veteran or military status to the protected categories under numerous provisions of state law barring housing discrimination. Landlords and housing owners are prohibited from discriminating against tenants who receive Veterans Affairs Supportive Housing vouchers. With respect to CC&Rs, other recorded governing documents or deeds, the cover page contains a statement that if the document contains any restriction based on certain characteristics, that the restriction violates state and federal fair housing laws and is void, and may be removed. SB 222 incorporates veteran or military status to the list of characteristics set forth in the statement on the cover page of these recorded documents.
Board and Manager Takeaway:
Boards and management should ensure that an association’s governing documents do not include any restrictions that act to prohibit owners from renting to veterans or based on military status, which includes payment by veteran housing vouchers. Future amendments to an association’s declaration of CC&Rs will require the recording page to include the required statement.
- INSPECTION OF EXTERIOR ELEVATED ELEMENTS (decks, balconies, walkways)
In 2015, a fourth-floor balcony at an apartment complex in Berkeley collapsed, resulting in multiple fatalities and injuries. Subsequent investigation revealed that years of moisture led to dry rot along the top of the balcony supports, causing them to give way. This tragedy galvanized the Legislature to address deficiencies in construction, maintenance, and inspection of balconies, decks, and other “exterior elevated elements” in condominiums.
SB 326 establishes a mandatory inspection procedure for “exterior elevated elements” (defined as a building’s “load-bearing components” together with their associated waterproofing systems; “load-bearing components” include decks, balconies, stairways, walkways, and railings, with a walking surface elevated more than six (6) feet above the ground) within condominium associations. No later than January 1, 2025, and at least once every nine (9) years thereafter, condominium associations must complete visual inspections of “exterior elevated elements” for which the association has maintenance or repair responsibility. This inspection requirement applies to buildings containing three (3) or more units.
Essential Steps: Associations must retain a licensed engineer or architect to conduct a “reasonably competent and diligent visual inspection of a randomly generated and statistically significant sample” of the “exterior elevated elements” to determine if the elements are in a generally safe condition. The inspector inspects and writes a report documenting each element inspected, its current condition, its expected future performance and remaining useful life, and recommends necessary repair or replacement. This report is incorporated into the reserve study. However, if there is water or vapor beyond an associated waterproofing system, then the inspector may unilaterally conduct a further inspection with a scope determined solely at the inspector’s discretion. If the inspector identifies any element that poses an immediate threat to the safety of the occupants, the association and local code enforcement must be notified within 15 days (for further enforcement by the municipality at the association’s cost). Naturally, the association must restrict access to the element until it is repaired.
Board and Manager Takeaway: The inspection of a “statistically significant sample” of decks or balconies, etc., means a number that is “sufficient to provide 95% confidence that the results from the sample are reflective of what is built” at the community. This, combined with the inspector’s unilateral authority to perform further testing at the association’s expense, repair costs and possible enforcement costs imposed by local enforcement agencies, will result in significant expense to the association. There are very few inspectors, so get in line now. In the meantime, reserve for the initial inspection, and then fund reserves in an amount sufficient to cover the inspector’s secondary forensic “deep-dive” inspection and resultant repairs.
- FAMILY DAYCARE HOMES
Under SB 234, the protections provided to “small family daycare homes” (up to 8 children) are extended to “large family daycare homes” (up to 14 children), and large family daycare homes will now be considered as a residential use of property. Daycare homes can occur in a detached single-family dwelling, a townhouse, or a dwelling unit within a dwelling, or within a covered multifamily dwelling in which the underlying zoning allows for residential uses.
Board and Manager Takeaway: Associations can still require such homes to meet all applicable ordinances, regulations and other applicable statutes as to operation, insurance, and other requirements. Declarations of CC&Rs or other governing documents of an association restricting the use or occupancy of an applicable dwelling as a family daycare home are void. Get us involved if you want to take on one of these legally privileged businesses within your community.
- BOARD MEMBERS: ELECTION BY ACCLAMATION
This bill provides that in associations with 6,000 or more units, if, at the close of the nomination period, the inspector of elections determines that the number of nominees is not more than the number of vacancies on the Board, the nominees will be considered elected by acclamation if the association provided individual notice of the election and nomination procedure at least 30 days prior to the close of nominations and the association allows all qualified candidates to run if nominated.
Board and Manager Takeaway: Although likely not applicable to your communities yet, we expect this law to be expanded in coming years. Right now, the association is required to count ballots and report those numbers to the members pursuant to the Davis-Stirling Act.
- NEW CASES
- Highland Greens Homeowners Association of Buena Park v. Maria A Basave De Guillen,
On August 26, 2019, the Ninth Circuit Court of Appeals Bankruptcy Appellate Panel (the “BAP”) in Highland Greens Homeowners Association of Buena Park v. Maria A. Basave De Guillen (“De Guillen”) distinguished the California case of Bear Creek Master Assn. v. Edwards (“Bear Creek”). Bear Creek is a case which all homeowners associations have relied upon to justify “continuing” assessment liens (i.e., liens that automatically update to include all delinquent assessments, late fees, interest and costs of collection accruing following the date the lien was recorded). This decision has resulted in an immense divide within the HOA collections community as to whether recording multiple “successive” liens are now required to be recorded through the collections process.
This case involves delinquent assessments owed by De Guillen (“Debtor”). Highland Greens recorded a Notice of Delinquent Assessment (“Notice”) against Debtor’s condominium and a subsequent amendment thereto, to include unpaid assessments and charges accruing after the date of the Notice. Association sued Debtor to enforce its lien and obtained a default judgment for foreclosure and a money judgment that included principal, attorney’s fees and collection costs. Debtor filed for Chapter 13 bankruptcy and Association filed a proof of claim.
In objecting to Association’s proof of claim, Debtor argued that the Davis-Stirling Act prohibited a “continuing” lien and contended that the Bear Creek case was not binding on the bankruptcy court. The lower bankruptcy court ruled that there was no continuing lien based on the Association’s Notice, and as such the only basis for the Association’s security interest in debtor’s property was the Association’s judgment lien, resulting in a re-classification of the Association’s claim from secured to unsecured. The BAP agreed, finding that the language of the Association’s Notice conflicted with the Association’s CC&Rs, which do not authorize a continuing lien, and that the Davis-Stirling Act does not separately authorize a continuing lien.
Essentially, the De Guillen Court said that new debt can be secured by the old lien if an association’s CC&Rs have the right language, but that associations cannot rely solely on the Davis-Stirling Act to secure new debt with an old lien during a bankruptcy. The De Guillen Court suggested an association record “successive liens” or risk having a large portion of its debt deemed unsecured if the debtor files bankruptcy. (This is why some collections entities identify this as “the most conservative” approach.)
Board and Manager FAQ’s:
Does De Guillen only apply to bankruptcy claims? YES, for now. This limitation on continuing liens only applies in Federal Bankruptcy Court, which affects less than 3% of our collections cases. Bear Creek is still good California law! Our suspicion is that any FDCPA attorney suing an association will do so using the Federal law, which now has distinguished Bear Creek. Although De Guillen is a bankruptcy decision, it assumes that California’s Supreme Court will invalidate some or all continuing liens.
Do We Need To Automatically Record Successive Liens? Successive liens are an unnecessarily expensive and potentially dangerous liability trap. We advise against successive liens unless the original lien is defective or outdated. Might a client lose some dollars as a secured creditor in a bankruptcy? – FULL DISCLOSURE: Yes! But here is the flipside:
- Each new lien takes 3 months, costs hundreds of dollars, and requires multiple notices
- Each one of the liens must identify their separately correct accounting, or violate FDCPA
- Each one of the liens has its own payoff amount, and potentially its own terms
- If the debtor (who isn’t making payments already) doesn’t pay for it – the HOA does!
- If the HOA intends to “replace” lien #1 with lien #2, they lose their title seniority as to #1
- HOA’s must pander to the “least sophisticated debtor” or risk FDCPA claims.
- Imagine the least sophisticated debtor receiving a pre-lien notice for lien #2 the same week they receive a notice of foreclosure sale on lien #1. Imagine explaining lien #3 to the judge…
- If the debtor makes a partial payment, to which lien does it apply?
- When the HOA forecloses on lien #1, it wipes out itself (as junior lienholder #2)
- If the HOA forecloses lien #1, the homeowner can now redeem by paying off only lien #1
Manager and Board Takeaways: The Ninth Circuit Court of Appeals threw us all a curveball, but we’ve been at bat before and we’re ready. Here’s what we are suggesting for our clients:
1) Check the CC&Rs to see if they provide (good) Bear Creek style continuing lien language. If so, rejoice! If not, consider amending the CC&Rs to reduce future bankruptcy exposure.
2) Check the existing lien – Is it defective or old and outdated? If so, update it at the start of your collection action, then let it run.
- Eisen v. Tavangaria. Enforcement of CC&Rs Requires Close Reading
This case involves a neighbor to neighbor dispute arising out of remodeling improvements made by the Tavangarians to their home in Pacific Palisades. The crux of the dispute was the Eisen’s assertion that the improvements made to the Tavangarian’s home violated several provisions of the applicable CC&Rs, including view protection provisions. Here, the CC&Rs contain provisions that: (1) provide for only single-story homes except for those two-story homes that were initially approved by the developer or architectural committee, (2) require architectural committee approval for architectural alterations, and (3) prohibit “structures” from being erected that could potentially block the view from another owner’s lot.
Eisens argued that (1) the Tavangarian’s home could not be altered or modified to enlarge its silhouette even though their home was an approved two-story home, (2) the Tavangarians were barred from making any new architectural modifications in the absence of a review entity, and (3) the CC&Rs provision restricting “structures” from blocking other owners’ views restricted the Tavangarian’s roof top improvements in addition to a hedge that was allowed to grow to a height that blocked views. The trial court agreed with the Eisens and ordered the Tavangarians to remove several improvements which blocked the Eisens’ view.
The Court of Appeal reversed holding: (1) the CC&Rs provisions limiting homes to single-story construction did not apply to the Tavangarian’s home as it was initially approved as a two-story home, (2) the expiration of the architectural review provision resulted in the expiration of continuing architectural approval and that the Tavangarians were not required to seek and obtain architectural approval for their modifications, and (3) the term “structures” did not apply to primary residences and was interpreted to mean items such as fences, outbuildings, etc., and that this provision did not prohibit tall landscaping and alterations to existing structures.
Board and Manager Takeaway: No enforcement case is an unequivocal winner, and anyone who says so is lying or ignorant. Interpretation issues are common and demonstrate the necessity of examining the governing documents for vague and disputable language, particularly where the governing documents are decades old as was the case here.
- Orchard Estate Homes v. Orchard Homeowners Alliance. Court Amendment Approval
Orchard Homeowner Alliance (“Alliance”) opposed the Orchard Estate Homes, Inc.’s (“Association”) petition seeking to reduce the percentage of affirmative votes necessary to adopt an amendment to its CC&Rs restricting short term rentals of units. Shockingly, Alliance was comprised of owners who purchased their units for short term rental purposes. The CC&Rs require a supermajority of 67% approval of members to pass the proposed amendment. Of the 93 members, 62% voted to approve the amendment, falling short of the 67% required approval, but within the Court’s Civil Code Section 4275 authority to approve amendments which had garnered at least a majority approval of the members.
Alliance objected, arguing Association was required to establish, and had not argued or proven, voter apathy, as a precondition of the Civil Code Section 4275 petition. The Court of Appeal disagreed holding that Civil Code Section 4275 does not require a showing of voter apathy as a prerequisite to granting relief. The Court, citing Mission Shores Assn. v. Pheil, 166 Cal.App.4th 789, 794-795 (2008), stated: “The purpose of [the statute] is to provide homeowners associations with the ‘ability to amend [their] governing documents when, because of voter apathy or other reasons, important amendments cannot be approved by the normal procedures authorized by the declaration.”
Section 4275 gives the trial court broad discretion in ruling on such petitions and the court may grant the petition if the association establishes that: (1) notice was properly given, (2) balloting was properly conducted, (3) reasonable efforts were made to permit eligible members to vote, (4) more than 50% of the members voted in favor of the amendment, and (5) the amendment was reasonable. Thus, Orchard was not required to plead and prove voter apathy.
Board and Manager Takeaway: Trial Courts are notoriously inconsistent in their handling of 4275 petitions. Though voter apathy now need not be established, it is not uncommon for courts to impose additional notice requirements and super-impose their own language in lieu of that approved by the membership.
- Ranch At The Falls, LLC v. O’Neal. Easement Claims Must Meet Strict Standards
Plaintiff purchased a ranch in Chatsworth which, after time, was surrounded by several gated communities. Plaintiff filed an action in quiet title over two access easements through the gated communities. These easements had historically provided Plaintiff with access from the west of her property, and had been used by large trucks and other visitors and vendors to Plaintiffs ranch. Although Plaintiff also had access from the east, with an undisputed right to travel over one private street that went through Indian Springs and the Indian Falls gated communities, Plaintiff objected to this route as it required use of an old and narrow bridge which Plaintiff considered to be dangerous. The trial court entered judgment in favor of Plaintiff finding she was entitled to an express easement (or alternatively a prescriptive easement) and an equitable easement over all the private streets in one community and over a homeowner’s lot within the second community
The Court of Appeals disagreed, concluding that the trial court erred on, not one but, several points: The Court (1) questioned why the individual owners in the adjacent community were not necessary parties to the quiet title action by virtue of their ownership of the private streets; (2) found an express easement in Plaintiff’s favor over all the private streets of Indian Springs unnecessary because an existing applicable easement document clearly showed an exact route over one private street in Indian Springs, (3) overruled the prescriptive and equitable easements because Plaintiff did not establish the requirements for either, and (4) ultimately found Plaintiff’s reliance on an easement document in favor of a third property that Plaintiff no longer owns did not provide access to Plaintiff’s existing property.
Board and Manager Takeaway: Easement disputes are tricky, and it’s important to truly understand each of the specific elements for the claim presented. Casual statements that one owns easements due to “adverse possession” or just has “an easement by right” deserve strict scrutiny early in the case, well before the court is asked to grant a right over property of another.
- Sands v. Walnut Gardens Condominium Association, Inc. Resultant Damages
The Sands owned a unit in the Walnut Gardens development, where a pipe on the roof broke pouring water into the Sands’ bedroom. The association had responsibility to maintain its common areas, including this piping and roof, and timely hired a vendor to repair same. Sands sued for breach of contract and negligence, attempting to get payment for their damaged private property within their unit. The trial court selected a jury, heard the Sands’ two witnesses, and granted a nonsuit on the grounds the association was not negligent and therefore was not responsible for resultant damages (never giving the case to the jury).
Turns out that Sands’ witnesses testified that the association had failed to perform any preventive maintenance and the roof and pipes over their unit had not been inspected or maintained in years. The Court of Appeal found the grant of nonsuit legally impossible. Relying on the witnesses, it determined that reasonable jurors could have concluded a total failure to maintain common areas breached a promise to maintain these areas in first class condition, as required by the CC&Rs. The association’s standard argument that no prior failure had provided advance notice that repairs were necessary was not enough to overcome the manager’s testimony that the board would not approve regular maintenance at the community. The Court found a complete lack of preventive maintenance was evidence that the association did not keep the roof or pipes in first class condition.
Boards and Manager Takeaway: First Class Condition is a really tough standard to meet, made particularly difficult when the board won’t approve dollars for regular maintenance. This recipe resulted in a cocktail where the Court of Appeal was anxious to give the question of negligence to a jury, even in the absence of “notice.” Boards and managers should ensure that they are performing their duties to inspect and repair the components within their communities for which associations are responsible. The mere absence of “notice” or affirmative knowledge of a condition that requires repairs will not act to insulate an association from their duty to perform preventive maintenance, including inspections. Associations should also be aware of any similar language in their CC&Rs regarding maintenance of the community in a “first class condition.”
- Obduskey v. McCarthy Holthus L.L.P. – Fair Debt Claims Against Association
The United States Supreme Court unanimously held that a business engaged in no more than nonjudicial foreclosure proceedings is not a “debt collector” under the Fair Debt Collection Practices Act (FDCPA), except for the limited purpose of enforcing security interests under 15 USC Section 1692f(6). The facts involve Dennis Obduskey who defaulted on his mortgage. McCarthy & Holthus, counsel for Wells Fargo, initiated nonjudicial foreclosure with a notice in 2014. Obduskey disputed the debt pursuant to FDCPA procedures. McCarthy & Holthus initiated a new nonjudicial foreclosure the following year rather than continuing through the FDCPA process. Obduskey filed another FDCPA claim. After examining the definitions set forth in Section 1692f, the USSC determined that McCarthy & Holthus met the “limited-purpose” definition of “debt collector” that includes “any person … in any business the principal purpose of which is the enforcement of security interests.” This took McCarthy & Holthus out of the “primary definition” of “debt collector,” rebutting Obduskey’s argument that McCarthy & Holthus took actions that were “more than security-interest enforcement.” Because McCarthy & Holthus took only the debt collection steps required by Colorado in their nonjudicial foreclosure proceeding against Obduskey, the notices McCarthy and Holthus sent to Obduskey were not considered “attempts to collect a debt” that fell outside the limited purpose definition.
Board and Manager Takeaway: The USSC ruling, though unanimous, is very narrow to the facts of this case. Justice Sotomayor concurred, stating that had defendants taken action that frightened the homeowner “with the threat of foreclosure without showing any meaningful intention of ever actually following through,” the decision could be different. It is not anticipated that this case will meaningfully discourage FDCPA litigation involving claims whether nonjudicial foreclosures are efforts to collect debts. If McCarthy & Holthus had taken action beyond its mere following of Colorado’s nonjudicial foreclosure laws, this case would likely have been decided differently.
WHEW, You Made It! We prepare this Summary of New Legislation and Case Law to help you understand the newly enacted or interpreted laws, and how to best apply them this coming Monday morning. THE FIRST THREE BILLS (pertaining to election rules, employee/independent contractor status, and ADU/JADU’s) REQUIRE IMMEDIATE ACTION – SO PLEASE PUT A COPY OF THIS IN YOUR BOARD’s NEXT MEETING PACKET AND GET THOSE ISSUES ON YOUR NEXT AGENDA. Also, if you would like to receive our quarterly newsletters, please log onto www.attorneyforhoa.com and sign up! We’d love to have you as part of the team.