Foreclosure: Judicial or Non-Judicial

Foreclosure

Debt collection is not a phrase many of us want to hear, but for Associations it is common place when homeowners fail to pay their assessments and fees. The delinquent assessments accrue and the Association is forced to take action to collect the debt. Pre-lien notices and lien notices are sent to the homeowner to prompt payment. When the homeowner continues to disregard the payment of assessments and the notices, the Association may turn to foreclosure of the property. There are two avenues of foreclosure available for Associations: Judicial and Non-Judicial.

Judicial foreclosure is done through the court system. After giving the appropriate notices to the homeowner and filing for a lien against the property, the Association may file a lawsuit with the court. The Association may seek both the ability to foreclose on the property and seek money damages, which can be obtained by means such as wage garnishment or bank levy. If, after obtaining a judgment, the Association decides to foreclose on the property, the foreclosure will be done by the county sheriff’s office. The proceeds of the sale will first pay court costs and the costs associated with the foreclosure. Then the Association and other creditors the homeowner may have will receive what they are owed.

The benefit of doing a judicial foreclosure is the ability to seek a deficiency judgment. There will be times when the proceeds of a foreclosure sale do not fully compensate the Association for the debt that it is owed. When that occurs, the Association can seek a deficiency judgment. A deficiency judgment is a judgment for the remainder of the debt owed to the Association. When considering whether to obtain a deficiency judgment, the Association should consider the homeowner’s right of redemption. The debtor homeowner is allowed to payback all the debt owed, and if he does so, he is given back his property. When an Association obtains a deficiency judgment, it extends the amount of time the homeowner can exercise his right to redeem the property.

Non-judicial foreclosures can be done by the Association without having to file a lawsuit. They are typically faster and inexpensive in comparison to judicial foreclosures, and there is no court oversight. Because there is no court oversight, it is highly important the Association follow the exact steps and guidelines prescribed by the California legislature to perfect the process. While the cost and speed of a non-judicial foreclosure are beneficial, the Association may not seek a deficiency judgment, nor may the Association seek payment of the debt by other means such as wage garnishment.

Both foreclosure options have their own pros and cons. As such, different debtors will call for different forms of foreclosure to adequately compensate the Association for the debt owed. An Association should, therefore, consider the pros and cons provided by both foreclosure processes, the economic background of the delinquent homeowner, and the Association’s own economic standing when considering which foreclosure process it is going to employ for the specific debtor and his property.

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The Revised Davis-Stirling Act

The year 2014 ushered in a new and improved Davis-Stirling Act. Following the installation of the revised Davis-Stirling Act, Associations have encountered and faced the task of making revisions to their governing documents to reflect the statutory changes.

While it seems as if only the Associations have dealt with and maybe still are dealing with such chores, the California Senate also faced the task of “clean[ing]-up,” as the Senate states in SB 745, the revised Davis-Stirling Act before it hit the main stream.

Two noteworthy acts of “clean-up” were the addition of section 4070 and the reorganization of section 4530. Section 4070, as currently seen in the California Civil Code, allows actions which need approval by a majority of a quorum to be done through a vote. Specifically, statute state states:

If a provision of this act requires that an action be approved by a majority of  a quorum of the members, the action shall be approved or ratified by an affirmative vote of a majority of the votes represented and voting in a duly held election in which a quorum is represented, which affirmative votes also constitute a majority of the required quorum. California Civil Code § 4070.

Additionally, section 4530 saw redlines and reorganization to the statutory provisions. For example, a comparison of subsection (b) of the initially submitted statuary provision, section 4530, and the final approved product looks like the following:

 (b) (1) The association may collect a reasonable fee based upon the association’s actual cost for the procurement, preparation, reproduction, and delivery of the documents requested pursuant to this section. Additional fees shall not be charged by the association for the electronic delivery of the documents requested.

(b) (2)  (1)  The association may collect a reasonable fee based upon the association’s actual cost for the procurement, preparation, reproduction, and delivery of the documents requested pursuant to this section.  Upon receipt of a written request request,  the association shall provide provide,  on the form described in Section 4528, a written or electronic estimate of the fees that will be assessed for providing the requested documents.

(2) (3)  No (A)   additional fees may be charged by the association for the electronic delivery of the documents requested. A cancellation fee for documents specified in subdivision (a) shall not be collected if either of the following applies: 

(3) (i)  Fees for any documents required by this section shall be distinguished from other fees, fines, or assessments billed as part of the transfer or sales transaction. The request was canceled in writing by the same party that placed the order and work had not yet been performed on the order. 

(ii) The request was canceled in writing and any work that had been performed on the order was compensated.

 While the new Davis-Stirling Act went through its alterations and revisions, so too do the multitude of governing documents that exist for each and every Association in California.

For more information on the changes and revisions the Davis-Stirling Act went through, you can visit the California Legislative Information website at http://leginfo.legislature.ca.gov/faces/billVersionsCompareClient.xhtml.

 

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Legal Update: Adding Debtors to a Judgment

Judge Holding Mallet

A common problem for Associations is delinquent assessments. There are homeowners who for varying reasons fail to pay their monthly assessments. The Association is forced to turn to legal counsel to seek enforcement after its efforts to collect the debt fail. This generally results in a judgment against the homeowner, which the Association may seek to enforce. What if the homeowner, however, is an entity, such as an LLC, rather than an individual or individuals? And, what if that LLC is insolvent?

Recently, in Relentless Air Racing, LLC v. Airborne Turbine Ltd. Partnership, a California court of appeal had to address a similar situation. Airborne Turbine Ltd. (“Airborne”) failed to pay Relentless Air Racing (“Relentless”) for an airplane Relentless had sold to Airborne. Relentless sued Airborne and obtained a judgment for the funds owed. Relentless, however, was unable to collect the funds because Airborne was insolvent. Relentless Air Racing, LLC v. Airborne Turbine Ltd. Partnership, 222 Cal.App.4th 811, 813 (2013).

 Relentless, in order to collect the funds owed to it, sought to add additional parties to the judgment it had already obtained, including Linda and Wayne Fulton. The Fultons were the sole owners and operators of Airborne. The question the court had to ask itself was whether it would allow the Fultons to be added to the already existing judgment. Relentless Air Racing, LLC, 222 Cal.App.4th at 814-15. The public policy the court had to grapple with is the defendants’ right to give their side of the story during litigation; that is, to present their case to the judge. However, a debtor, who is being added to a pre-existing judgment, does not get such a right.

The court in Relentless Air Racing, LLC., however, found that there are certain situations in which the creditor may add additional debtors.  Three criteria must be met for this to be possible: One, the parties must have had such control in the litigation that led to the judgment that it was as if they were actually represented. Two, the additional debtors and business entity are practically identical. And, three, it would be inequitable to exclude the additional debtors from the judgment. Relentless Air Racing, LLC, 222 Cal.App.4th at 815-16.

Applying these three criteria to the case, the court found the Fultons (1) had full control over their business; (2) they and their business were not separate from one another. They were the sole owners and operators of the business; they freely transferred money from their business account to their personal accounts; they disregarded legal formalities required for LLCs; and they use the labor and service of the LLC for their own gain and for their other business’ gain rather than the gain of the LLC. And (3), as the Fultons had such control of the LLC, and there was no legal difference between the two, the courts inferred that an inequitable result would occur if the Fultons were not added to the judgment. That is, the Fultons could keep Airborne insolvent resulting in Relentless never being paid. Relentless Air Racing, LLC, 222 Cal.App.4th at 814-16.

While this is a good outcome for Relentless, what does it mean for Associations seeking payment of delinquent assessments? When the home is owned by a corporate entity, the Association may be able to add additional debtors to already existing judgments. This provides the Association with an additional outlet for compensation if it is discovered after litigation that the property owner, an entity, is insolvent.

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Legal Update: HOA Gets Injunction to Keep Homeowners’ Dangerous Dogs Out of Common Areas

In a recent California Court of Appeal decision, an Association successfully obtained a permanent injunction prohibiting homeowners from allowing their dangerous dogs to leave their property except for transportation purposes.  Costa Del Sol at Carmel Valley Homeowners Association v. Scott Mitchell et al., 2014 WL 341653 (2014).

The Mitchells moved into the development in 2002 and owned three large German Shepherd dogs.  Mrs. Mitchell often had trouble controlling the dogs when she would take them on walks.  She also allowed the dogs to run unleashed in a nearby undeveloped area.  Beginning in 2006, numerous incidents involving the Mitchell dogs occurred.  On one occasion, two of the dogs charged at a family with young children while Mrs. Mitchell did nothing to try to restrain her dogs.  On another occasion, the three dogs attacked and bit a moving company worker.  Over the next two years, the Mitchell dogs attacked, bit, or acted aggressively towards several other Association workers, residents, and pets.  At one point in 2007, the County Animal Services Department issued a quarantine order for the dogs, which Mrs. Mitchell refused to cooperate with.

In 2008, the Mitchells were notified by the Association that these incidents violated various provisions of the CC&Rs.  The Board conducted a hearing on this matter where it accepted Mr. Mitchell’s offers to make several dog control corrections.  The Mitchells never made these corrections, continued to walk the dogs without the proper leashes, and refused to pay the enforcement fines.  Subsequently, the dogs were responsible for yet another attack on a neighbor’s puppy.  The Board met again and found that the Mitchell dogs “continued to present a serious danger to other persons and animals within the residential development.”  The Mitchells were sent another letter from the Board giving them the opportunity to take certain precautionary steps to better contain their dogs, and again, the Mitchells did nothing to remedy the problem.

 In 2010, the Association brought a legal action against the Mitchells, seeking injunctive relief and monetary damages for nonpayment of the enforcement fines on the theories of breach of an equitable servitude (CC&Rs), private and public nuisance, and violation of Civil Code section 3342.5 (“Whenever a dog has bitten a human being on at least two separate occasions, any person… may bring an action against the owner…”).  The court heard twenty witnesses at trial and ruled in favor of the Association on each of its claims.

 The trial court found the evidence proved that the Mitchell dogs had “menaced, charged, lunged at, attacked, or bitten persons and other dogs within and about the Development.”  Additionally, the Association substantiated its claim that under the Mitchells’ supervision, their dogs presented “a clear and present danger to the residents and animals of the community without Court intervention.”  The court also emphasized the fact that the Association made many attempts to work with the Mitchells in order to resolve these issues, but the Mitchells were uncooperative.

 A permanent injunction prohibiting the Mitchells from allowing their dogs to leave their property except for transportation purposes was issued by the court.  In addition, the court ordered the Mitchells to pay $1,550 in outstanding enforcement fines.  On appeal, the court found no merit in the multiple evidentiary and procedural arguments that the Mitchells presented and affirmed the judgment in favor of the Association.

This case is extremely helpful to homeowners associations because it provides instructions on how to effectively deal with homeowners who have pets that have been proven to be dangerous.  Courts may issue permanent injunctions prohibiting dangerous pets from common areas if the association can show the following: (1) the pet presents a clear and present danger to the other animals and residents of the community and (2) the owner fails to cooperate with efforts made by the association in such a way that court intervention becomes necessary for the safety of the community.

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Legal Update: Construction Defect Plaintiffs Must Meet Heightened Standard for Discovery of Trade Secret Documents

In a construction defect lawsuit, the California Court of Appeal recently vacated a trial court’s order that would have directed a company employed by the builder to produce certain trade secret documents. Knight v. Superior Court, 2013 WL 2449205 (2013).

The company, FrontLine Response, LLC (“FrontLine”), was hired by the builder to serve as an extension of the builder’s warranty department. FrontLine speaks directly to the homeowners, investigates their issues, and communicates the requested repairs to the builder. The plaintiff homeowners in this case requested the production of certain FrontLine documents, including its employee training materials.

Mark Knight, president of FrontLine, moved to quash the subpoena by arguing that the training materials included trade secret information. Trade secrets are protected from disclosure under California Evidence Code section 1060 to the extent that “the allowance of the privilege will not tend to conceal fraud or otherwise work injustice.” The trial court denied Knight’s motion and ordered him to produce FrontLine’s employee training materials.

In Knight’s petition to the Court of Appeal, he sought to limit the trial court’s order. The appellate court found that the trial court should have applied a heightened standard before requiring the disclosure of trade secret documents. A party seeking discovery of these privileged documents must prove “that the information sought is directly relevant and its disclosure is necessary” to the resolution of the lawsuit. Since the trial court only applied the general discovery standard under California Code of Civil Procedure section 2017.010, the appellate court directed the trial court to vacate its order directing Knight to produce FrontLine’s employee training materials and to reassess the discovery issue under the heightened standard.

This case illustrates the fact that construction defect plaintiffs should be prepared when seeking discovery of developer documents that may contain trade secret information. Before a court can order the production of these privileged documents, plaintiffs will need to show the direct relevance and necessity of the trade secret documents to the pending litigation.

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Legal Update: HOA Foots the Bill for Homeowner’s Repairs and Pays Punitive Damages

Mario Van Peebles sold his Los Angeles condominium to Adel Bebawy; and to his alleged surprise, there was a history of mold and sloping floors. Bebawy filed suit against Van Peebles and against the Homeowners Association. In a tentative ruling by Judge Steven J. Kleifield, the Association, not Van Peebles, will be footing the bill for the repairs to Bebawy’s condo. Additionally, Judge Kleifield slapped on some civil penalties increasing the damages the Association will have to pay. Bebawy v. Van Peebles, Case No. BC410034 (2014) (tentative decision).

When selling and buying property California law dictates certain disclosures regarding the state of the property must be made by the seller to the buyer. The statutory law directs the seller to disclose, “all facts materially affecting the value or desirability of the property that [a reasonably competent and diligent] investigation would reveal.” Cal. Civ. Code § 2079.  And, the seller must act in good faith; that is, the seller must act honestly in the course of the transaction. Cal Civ. Code § 1102.7. It is, however, also the responsibility of the buyer to conduct his or her own reasonable investigation of the property. See Cal. Civ. Code § 2079.5.

To assist sellers and buyers in the course of the transaction, the California legislature has provided a mandatory disclosure form to be completed by the seller. Two such disclosures that must be made are the presence of mold and whether there exist any defects in the floors. Cal. Civ. Code § 1102.6.

While California law mandates mold, including mold remediation, be disclosed, courts may be willing to overlook this disclosure if knowledge of the remediation would not deter the buyer from purchasing the property and if it did not diminish the value of the property. Van Peebles appears to have escaped liability from his failure to disclose the mold remediation, as the court found Bebawy would have bought the property regardless of the mold history and there was no proof that the remediation diminished the property value. Bebawy v. Van Peebles, Case No. BC410034 (2014) (tentative decision).

Neither does Van Peebles have to pay for the cost of the flooring repairs; however, the Association is not so lucky. The court found Van Peebles had not concealed the fact that the floors sloped, and that during the course of his own investigation, Bebawy was informed by multiple sources of the sloping. If Bebawy was aware of the sloping, why, then, is the Association on the hook for the flooring repairs?

The condo Bebawy purchased is on the first floor. Below the flooring is a concrete slab, which is community property to be maintained by the Association. Bebawy claims the failure to maintain the slab has resulted in his sloping floors. The court agreed. While the court noted the proper relief Bebawy should have sought was injunctive relief to enforce the CC&Rs against the Association, the Association was still responsible for “repairs to an owner’s unit where the damage is caused by a defect in a common area,” not including any upgrades the homeowner may install. Bebawy v. Van Peebles, Case No. BC410034 (2014) (tentative decision).

Before filing suit against Van Peebles and the Association, Bebawy had brought the defective slab issue and his flooring problems to the attention of the Association. The Association, however, proceeded to ignore the problem and selectively enforce the CC&Rs against Bebawy. The Association also failed to properly inform Bebawy of meetings, omitted items from meeting minutes, and failed to hold mandatory meetings. Finding this to be a breach of fiduciary duty, the court imposed punitive damages on the Association. The court noted, “the existence of a hostile relationship does not excuse a homeowner’s association from compliance with the ACT, bylaws, and its fiduciary duty.”  Bebawy v. Van Peebles, Case No. BC410034 (2014) (tentative decision).

The Association’s own failure to maintain the common areas and its own breach of fiduciary duty resulted in the tentative result of having to pay $13,217.40 in repairs to Bebawy’s condo and an additional $13,000 for breach of duty and selective enforcement of the CC&. For other Associations, the lesson should be clear: Stay on top of the common area maintenance and do not let personal hostility affect your judgment! Enforce your CC&Rs equally and hold meetings as the governing documents and law require!

While Bebawy is not an Appellate decision, and is therefore not binding, it serves as a good lesson to Associations and their boards.  For more information on how to ensure your Board can avoid liability by properly maintaining the common areas and equally enforcing the governing documents, please contact our firm today!

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Legal Update: California Court of Appeal Enforces Rental Restriction Against Homeowner

Legal Update Pic

The California Court of Appeal, in a recent opinion (not yet published), upheld a rental restriction against a homeowner, finding (1) the provision to be unambiguous and reasonable, and (2) the Association had not waived its right to enforce the restriction.  Guttman v. Glen Towers Owners Association Inc., 2014 WL 255576 (2014).  The provision at issue restricted owners of single units from allowing anyone other than “individuals rationally related to the owner,” such as family, domestic help, and guests, from occupying the unit.  The plaintiff, an owner of such a unit had, over a period of about 13 to 14 years, rented his single units.  The Association, during this time, sent letters and questioned the plaintiff about who was residing in the units and if they were renting.  The plaintiff continuously denied he was renting the unit and claimed the individuals residing in the units were merely guests or domestic help.

Desiring to put an end to the letters and questioning, the plaintiff instigated legal action in 2010.  The plaintiff argued the phrase within the provision, “rationally related,” was unclear and ambiguous, and the restriction on renters was unreasonable and arbitrary.  The Court, however, thought otherwise.

To determine whether “rationally related” was an ambiguous term, the Court looked to the language within the CC&Rs rather than the common dictionary meaning.  The CC&Rs listed who was rationally related to the owners.  As such, the Court concluded it was the intent of the Association and the homeowners that people who were “rationally related” to the owner meant and included individuals who fell within the “same kind” of people listed in the examples set forth in the CC&Rs.  Paying tenants and strangers did not fall within this definition or interpretation of the provision.  Also, because the CC&Rs laid out those specific examples, the court concluded the provision was not ambiguous either.

When reviewing the reasonableness of the provision, the Court looked to the characteristics and circumstances of the single units.  The units were meant to be owned and associated with the larger master units.  They had a living space and bathroom but no kitchen. The Association restricted tenant from renting such units as there was increased risk of fires from hot plates being used for cooking.  These types of units attract transient individuals, which according to expert testimony, gives rise to increased security issues.  Furthermore, tenants are more likely than domestic help to use the facility’s amenities impacting other homeowners use. Under this reasoning, the Court found there was a common interest in having and enforcing the rental restriction.

The plaintiff’s final argument was that the Association had waived and was estopped from enforcing the restriction against him because the Association had ignored the provision and did not seek its enforcement.  The Court easily discarded this argument due to plaintiffs continued misrepresentation about the tenants.

For Associations this is good news and a reminder of how much force the CC&Rs hold. Courts will look to the language of the CC&Rs before looking at outside evidence of the meaning or a provision or term.  A court will also not fault an association for failure to enforce a restriction or obligation against a homeowner when the homeowner is actively trying to evade and hide his or her violation of the provision.

 

 

 

 

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Community Association Managers Q&A with the Attorneys at S&L

Q&A

Question:

I manage a high rise where each owner has two parking spaces deeded to them.  We have handicapped parking spaces in the “guest parking” area.  An owner has requested to use one of the handicapped spaces because it’s closer to the elevators to get to their unit.  They have a handicapped placard.  Is the association obligated to allow the owner to park in the handicapped space in guest parking even though they have designated spaces?

Answer:

Yes, the association should likely allow the handicapped owner to use the more convenient handicapped guest parking space.  Or, in the alternative, the board may wish to attempt to negotiate a compromise with the handicapped owner whereby he would transfer his right to his designated parking space back to the association in exchange for an exclusive easement or license in the guest handicapped parking space.  Note that, if the owner holds the designated parking space as an exclusive easement, a recorded transfer will be necessary for the exchange to be effective.

Statutory & Case Law.  Failure to provide a handicapped owner reasonable accommodations for parking could result in an action against the association under certain state and federal laws enacted to protect handicapped owners from discrimination.  These applicable laws include the California Government Code and the Fair Housing Act; each discussed in turn below.

California Government Code Section 12927(c)(1) requires housing accommodations for disabled individuals.  This code section defines “discrimination” as including “the refusal to make reasonable accommodations in rules, policies, practices, or services when these accommodations may be necessary to afford a disabled person equal opportunity to use and enjoy a dwelling.”

Similarly, the Fair Housing Act (“FHA”), 42 U.S.C. § 3604, protects handicapped individuals from discriminatory housing practices.  The FHA provides:  “It shall be unlawful . . . (2) To discriminate against any person in the terms, conditions, or privileges of sale or rental of a dwelling, or in the provision of services or facilities in connection with such dwelling, because of a handicap . . .”  42 U.S.C. § 3604(f)(2).  Discrimination includes “a refusal to make reasonable accommodations in rules, policies, practices or services, when such accommodations may be necessary to afford such person equal opportunity to use and enjoy a dwelling; . . .”  42 U.S.C. § 3604(f)(3).  Applying this FHA requirement, a federal court out of New Jersey has held that associations are “duty bound” to provide reasonable accommodations for handicapped parking, even when those accommodations would be in violation of the association’s governing documents.  See Gittleman v. Woodhaven Condominium Ass’n, 972 F. Supp. 894 (D.N.J. 1997) (holding the association is “duty bound” to “regulate use of the common elements so as to comply with the requirements of the FHA”).

Thus, the FHA creates an affirmative duty for the Board to make reasonable accommodations in rules, policies, practices and services to accommodate the needs of disabled owners.  As under California law, the failure to perform this affirmative duty (allow the accommodation) is an act of discrimination, for which the association may be liable.

Analysis & Conclusion.  Consistent with these statutes and persuasive case law, the association has an affirmative duty to make reasonable accommodations for disabled owners, such as allowing use of a more-convenient handicapped guest parking space.  Note, however, that when it comes to “reasonable accommodations,” there is no bright-line rule.  This is a rule of degree.

For instance, if the handicapped guest space is much more convenient than the owner’s current space, then it is much more likely that the association is obligated to accommodate the owner’s use of the guest space.  On the other hand, if the guest parking space was only marginally more convenient, then the association would have a lesser obligation to make the accommodation, if any.  And, if the situation was at the other extreme—say, for example, that the owner could not make any use of the designated space and could only use the guest space—then the association would certainly be required to make reasonable accommodations.

Reiterating our suggestion above, the association may be able to reach an amicable resolution by agreeing to a “switch” of sorts, where the disabled owner agrees to transfer his ownership of the designated parking space to the association in exchange for a license or exclusive easement to use the more-convenient guest handicapped parking space.

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Tis the Season for Holiday Decorations: Strategies to Avoid Conflict & Liability

Holiday

As the holidays approach, community association homeowners become passionate about one issue in particular:  holiday decorations.  Some residents may prefer to keep their lights and decorations up long after the holiday season has passed.  Other residents may take offense because the association does not impose enough restrictions on the public display of outwardly religious decorations, while still other residents may object to the number or type of Christmas decorations they are allowed to display.  With proper planning and forethought, boards of directors and managers can avoid conflict and liability this holiday season.

Adopt Reasonable Rules & Regulations. Associations should be proactive and adopt guidelines that will allow for and regulate the short-term installation of holiday decorations, all with a key goal in mind—“reasonableness.” Associations may find it worthwhile to mail a copy of the policy to homeowners as a reminder or include it in your newsletter at the appropriate time of year.

First, “reasonable” rules should include a specific timeframe, defining the exact length of time both shortly before and after the holiday season for decorations to be displayed in their full glory.

Second, the rules should include some guidance as to the type of decorations allowed.  The language here will likely need to be general to encompass all conceivable types of decorations, but more specific rules are possible and advisable when it comes to problems that can be easily anticipated.

For example, the generalized language could allow for decorations that are consistent with “reasonable and customary practices.”  And, if managers and directors anticipate that bright, blinking lights accompanied by a loud musical arrangement is going to cause more problems than cheer, the association could give notice beforehand that this type of display will be prohibited.  This can be accomplished either through specific language stating the same, or simply by prohibiting decorations that amount to a nuisance under applicable common law.  Many associations may even be able to simply reiterate a nuisance prohibition in its CC&Rs.

Lastly, for any association, a policy on decorations should clearly state the penalties for noncompliance.  Remember to be reasonable in setting standards in order to ensure the rule’s enforceability, and to avoid dampening the holiday spirit.

Fair Housing Act Issues.  Often, the association itself places holiday decorations in the common areas of a homeowners association or the common elements in a condominium.  Whatever your personal opinion may be on the perennial debate that surfaces during the holidays each year and that has coined phrases like the “War on Christmas,” and the “War on Tolerance,” either way, the applicable law reads and means the same thing.  Associations have an obligation to be non-discriminatory and uniform in the application and enforcement of holiday decoration rules.

Consequently, boards of directors and managers should take care to ensure that decorations and holiday displays in the common areas do not give the impression that the association favors one particular religion over another.  This could subject the association to discrimination claims under the Fair Housing Act (“FHA”).  See 42 U.S.C. §§ 3601-3619 (2006) (prohibiting discrimination on the basis of race, color, religion, sex, national origin, disability, or familial status in the sale or rental of housing and in the terms and conditions of the sale or rental of housing).

However, remember that the FHA restrictions do not apply to religious displays by private homeowners.  While common area religious displays should be avoided, residents of the association should be allowed, within the association’s rules and regulations, to display personal religious items in their homes and on their property.

 

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Make Understanding Amendments to Your Governing Documents a Piece of Cake (. . . or Pie, Depending On Your Preference)

Thanksgiving Pic w Pumpkin Pie

Governing documents are the foundation for governing an association.  If these documents are out of date or fail to adequately address basic operational problems, an amendment may be in the best interests of the association.  For example, with the 2014 changes in the Davis Stirling Common Interest Development Act (“Act”) just around the corner, now may be the best time for boards to consider a rewrite of their governing documents, or, at a minimum, an amendment to change outdated code sections to new sections.  Use the following guide to plan in advance how, when, and what type of votes are required for each type of amendment, and transitioning your governing documents into the new year will be as easy as pie!

            Amendment by Membership Vote.  First, the CC&Rs may be amended pursuant to the terms set forth in the Governing Documents themselves.  Most governing documents require a vote of the membership, and typically need between 51 percent (51%) and 75 percent (75%) affirmative votes.  As most Board members and managers likely know, it is extremely difficult, and sometimes impossible, to get the votes necessary to meet this requirement.

Second, the Civil Code provides that, if the Governing Documents do not contain provisions pertaining to amendments, the CC&Rs may be amended according to the terms of the statute.  See Civ. Code § 1355 [§ 4260, effective January 1, 2014].  Pursuant to Section 1355 of the Davis-Stirling Act [Section 4270, effective January 1, 2014], an amendment is effective after:

  1. The text of the proposed amendment has been distributed to all of the owners of separate interests not less than 15 days and not more than 60 days prior to any approval being solicited;
  2. The approval of the owners representing more than 50% (or any higher percentage required by the declaration) has been given;
  3. The amendment vote is certified in writing by a corporate officer;
  4. The amendment is recorded; and
  5. A copy of the amendment is sent by First Class Mail to all owners.

            Amendment by Court Petition.  Civil Code Section 1356 [Section 4275, effective January 1, 2014] provides a statutory procedure for an association to petition the court to reduce the percentage of affirmative votes required to amend the CC&Rs.  If the association cannot obtain the required percentage of votes to pass a CC&R amendment, but has obtained more than fifty percent (50%) membership approval, the association may petition the court to reduce the percentage of votes required to pass the amendment.

Generally, the association must show a reasonably diligent effort was made to permit all eligible members to vote on the proposed amendment.  And, the association must show the number of affirmative and negative votes actually received, and any other facts relevant to the amendment.  Lastly, the association must have obtained more than 50% approval from all members, not just those that have cast a vote. See Peak Investments v. South Peak Homeowners Ass’n (2006) 140 Cal.App.4th 1363.

            Vote of the Members NOT Required–Amending Outdated Code Section Numbers.  As you probably already know, the Davis-Stirling Act will be undergoing a complete make-over on January 1, 2014.  Besides some substantive changes, the 2014 revision to the Act will reorganize and recodify ever statute of the Act.  Assuming your association’s governing documents have not been amended recently, they most likely reference in numerous places sections of the current Davis-Stirling Act.  In approximately one month, these references will be outdated and inaccurate.   To promote an easy transition, the legislature allows for an amendment to the governing documents substituting references to the old Act with references to the new Act without a membership vote.

Contact Silldorf & Levine, LLP for a limited time only flat fee rate of $150.00 to update your association’s governing documents (including the CC&Rs, Bylaws and Collection Policy) to reference the new Davis-Stirling Act code sections.  This special rate includes our review and replacement of all references to the Act in your association’s documents.  Again, this amendment does not require a membership vote.  This special offer will end January 31, 2014.

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