What and Where Is “Exclusive Use Common Area”? Part 1

What and Where Is “Exclusive Use Common Area”? Part 1

The typical condominium project consists of three categories of property – the “separate interest” (normally called the “unit”), the common area, and a subset of common area called “exclusive use common area.” Misunderstandings regarding exclusive use area lead to many disputes. Simply put, exclusive use areas are not “your” property, but a part of the commonly owned property set aside for one member’s use. A better understanding of exclusive use area, what it is, who controls it, and who takes care of it can help prevent disputes in condominium associations. The unit is normally described in the “notes” portion of the condominium plan, a recorded (but often overlooked) document. There are many portions of a normal condominium project which are outside of the unit boundaries but intended for the use and enjoyment of a single unit owner. These parts are called “exclusive use common area”. The description of some exclusive use common areas might be found in the Condominium Plan or CC&Rs. Civil Code Section 4145 provides the default definition if the governing documents do not fully cover the topic, including: “shutters, awnings, window boxes, doorsteps, stoops, porches, balconies, patios, exterior doors, doorframes, and hardware incident thereto, screens and windows or other fixtures designed to serve a single separate interest, but located outside the boundaries of the separate interest…”. Fixtures serving a single unit but existing outside of the unit boundaries may include water heaters or air conditioning equipment, for example. Many condominiums are bought with the mistaken belief that the exclusive use area, such as, for example, a balcony, is “theirs” and the HOA cannot dictate how it...
Changes in Condominium Lending Rules

Changes in Condominium Lending Rules

The Department of Housing and Urban Development (HUD) has issued revisions to its condominium lending rules, effective October 15, 2019. In 2009 HUD began predicating FHA condominium loans on the entire project being approved by meeting certain minimum guidelines. HUD slightly liberalized its rules in 2012, which were modified again by Congress in 2018 through the enacted H.R. 3700. Here are some highlights of the new changes. The most significant change is that individual unit buyers will be able to obtain FHA loans even if the HOA is not HUD-approved. In non-HUD-approved HOAs, up to 20% of its members could qualify individually for FHA loans if the HOA meets certain criteria. The new rules also will liberalize the renewal process, as approved associations will now renew every three years instead of the current two-year cycle. Henceforth, renewals will be simpler, by updating the information on file rather than the current full reapplication process. One aspect of this update is negative, at least for “site condominiums,” condominiums consisting of individual detached dwellings. Although the previous rules excluded “site condominiums” the new rules include them, meaning that FHA loans in this unusual type of condominium now will also require project approval. Regarding project owner occupancy, HUD rules will permit granting special exceptions from the normal minimum of at least 50% owner-occupied condominiums to as low as 30%. Homes occupied part-time by their owners will be counted as “owner-occupied.” While the general HUD rule is that a maximum of 25% of the floor space in a project can be non-residential units, with exceptions granted up to 35%, under the new rule HUD...
Senate Bill 323: More “One Size Fits All” For HOAs

Senate Bill 323: More “One Size Fits All” For HOAs

Senate Bill (SB) 323 (Wieckowski) is now pending in the Assembly after passing through the Senate. The bill originally proposed to significantly expand election procedural requirements and now strays into additional areas, potentially creating even further problems for California HOAs. Since July 2006, when 2005’s SB 61 became law, HOAs have the most complex election requirements of all California nonprofit corporations. For example, HOAs are the only nonprofit corporations barred from using electronic voting (Civil Code 5115 requires paper ballots in double sealed envelopes). While many (including this author) felt SB 61 was overkill, SB 323 would take things even further. Under current Civil 5200(a)(9), members can request the HOA membership roster, including names and addresses, but under Civil 5220 members can opt out of that roster and keep their information private. SB 323 would require adding email addresses to the available roster information, something which many homeowners prefer to keep confidential. A proposed amendment to Civil 5125 would add additional items for post-election member inspection, requiring signed exterior ballot envelopes, voter lists and proxies also to be available for member inspection. Many residents do not wish their signatures or voting record to be available for public inspection. Some associations have bylaws automatically disqualifying delinquent members from voting, while others hold hearings under Corporations Code 7341 to suspend delinquent member voting rights. However, SB 323 would force associations to give ballots to all members – even to those deemed ineligible to vote. This would, in effect, cancel Corporations Code 7341, leaving HOAs as the only corporations unable to suspend member voting rights. SB 323 also would in a proposed...
Scaring Off Volunteers

Scaring Off Volunteers

Filling open HOA board seats is a vexing and discouraging problem for some associations. However, there may be some reasons why neighbors are not interesting in serving. Could any of the below describe your association? Volunteer Managers Do directors spend many hours each week on HOA business, inspecting the property, observing vendors, and otherwise dealing with the HOA’s daily matters? The well-intentioned sacrifice of so much time and energy may deter others from board service. Some neighbors may be retired or have the energy to spend 20-30 hours each week on association matters, but many don’t – and they are frightened of that level of commitment. Let the manager manage, or hire a better one. If the association does not have a manager, hire one. People need to know they are not signing up to be free association co-managers. Fire and Brimstone in the Clubhouse Some associations seem fraught with conflict and low standards of behavior. Few are interested in joining a board in which members display open hostility toward each other, or serving an association which seems to be always in litigation. Chaotic Meetings Disruptive and uncomfortable meetings filled with hostility between directors and the audience will repel most volunteers. Many prospective volunteers will decide that life is too short to deal with unpleasant people and will avoid meetings and not volunteer. Elevate professionalism and civility in board meetings, and consider adopting board meeting rules promoting civility and order. Fear of Liability Volunteer directors should not fear liability, even while making important association decisions. The Business Judgment Rule, corporate process, and directors and officers errors and omissions insurance...
They Won’t Pay, Now What?

They Won’t Pay, Now What?

When a homeowner fails to pay their share of the association expenses, the board is duty-bound to pursue the unpleasant but necessary task of compelling the member to pay. The association has three options – small claims court, non-judicial foreclosure and judicial foreclosure. In each approach, collection costs are added to the debt. Small Claims Court In small claims court associations can sue for a limited amount – up to $5,000 twice each year and each additional claim is limited to $2,500 per claim, under Code of Civil Procedure Section 116.231(a). Small claims court is fast, filing fees are low, and attorneys are not allowed to represent parties in small claims court trials. Plaintiffs cannot appeal the outcome, while defendants can appeal, sending the case to a retrial before a Superior Court Judge, under Code of Civil Procedure 116.710. Nonjudicial Foreclosure Nonjudicial foreclosure involves a series of notices and waiting periods, after which the property is taken away from the owner without court supervision. The goal of non-judicial foreclosure is simply for the HOA to take ownership of the property if the member does not pay the arrearage. If the property does not have enough net value to cover the debt, HOAs may not after a nonjudicial foreclosure pursue the member for more money. If the member is already in foreclosure from a lender, foreclosure is not a helpful option for the association. Prior to completing a foreclosure sale to take the property, consult legal counsel to confirm foreclosure is in the HOA’s best interests, because sometimes it isn’t. The foreclosure threat does not always compel owners to pay....
Transparency – Great for Windows (HOA Boards Too)

Transparency – Great for Windows (HOA Boards Too)

Nothing should be more important to volunteer boards than the trust of their neighbors. However, trust is not automatic and can be easily destroyed. Making good decisions for the association’s best interests is not enough. Decisions must be made in a manner which is above reproach and displays integrity and openness. These “baker’s dozen” tips may help to build and preserve the trust of the membership in its association governance. Initial Attitude Begin the board term with an attitude of service and not control. Directors with the right frame of mind are less likely to take offense when someone questions board decisions.  Board Meetings Other than the very few permissible closed session items, board discussion should be in open session. While it is easier for boards to work in closed sessions or “working meetings”, this violates the law and destroys the legitimacy of the open board meetings. Members will not trust a board which acts in secret on matters which should be in open session. Board actions taken due to emergencies or other circumstances outside of a board meeting should be disclosed in the next board meeting, and the reasons noted why the matter could not wait for the next meeting. A ratification motion can then further disclose the action in the minutes. Introduce each agenda item before discussing it. Attending members do not have the board packet, and a brief introduction of each item helps attendees to follow (not join) the discussion. Abstaining on a vote which uniquely affects one’s building and not the entire community, or otherwise concerns a director individually, is not enough – step away...
Tips Regarding HOA Committees

Tips Regarding HOA Committees

Most associations find committees helpful. Here are some tips to maximize their value to the HOA: 1. Committees can be “ad hoc,” i.e., temporary, or ongoing Committees typically address a major ongoing area of concern or take on the study of larger or complicated issues. 2. A committee is a group A committee should have at least 3 or 4 members. When a committee dwindles down to one or two persons, it is no longer a committee and should be restocked with volunteers or disbanded. 3. Appointments in the open Committee appointments (or removal) should occur in open meetings. Committee members are not “personnel” and so discussions about committee rosters are not eligible for closed session. 4. Committee service not perpetual Committees normally serve at the pleasure of the board. If a committee is not performing well, committee members can be replaced, and if the committee is not required by the governing documents, it can be disbanded by board vote. 5. Have committee charters Each committee should have a clear written charter adopted by the board. A clear charter informs the committee (and potential volunteers) what is the committee’s role, helping keep the committee on target. A charter also can indicate the minimum and maximum number of members. 6. No interference with vendors or management Committees and their chairs often need to be reminded that decisions are made by the board, that committees make recommendations, and that the committees and their chairs are not authorized to instruct management, association vendors, or other residents. 7. Have directors on committees if possible, but not too many One director on committees helps...
Open Forum: Drudge or Jewel?

Open Forum: Drudge or Jewel?

The “Open Meeting Act” (Civil Code Sections 4900-4955), requires at Section 4925(b) that all membership meetings and board meetings have a time set aside for members to speak. This time is often called “open forum.” In open forum, a member can speak on topics on or off the agenda. Some associations avoid open forum and others have unrestricted open forum, but both extremes are unhealthy. The time for homeowners to contribute to the meeting is not during deliberations – that is the board’s role – but during open forum. Open forum is an important element of a healthy association. If members have a fair opportunity to address an attentive board, they will have a more positive view of their association, and directors will be better connected with the community they serve. Consider these guidelines: Directors: Establish reasonable time limits to protect participation by all. Most associations allow 2 or 3 minutes per speaker. Have a timekeeper and consider giving members a “30 second warning” to help them. Do not interrupt, argue with, or respond to the speakers during their time. Listen to the speakers and take notes. Show attentiveness to their concerns – you just might learn something new. Do not record open forum comments in the meeting minutes – comments are not actions. Some speakers may disagree with the board or criticize. Deal with it — you are in a position of service, and they might sometimes be right! After open forum concludes, the chair should inquire if any item from open forum should be referred to a committee or management. If an answer to a question is...
We Like This Manager, But Are They Qualified?

We Like This Manager, But Are They Qualified?

Previous columns addressed management options and contracts. After selecting the desired type of management services, how can a board know if a manager prospect is qualified? California managers are unregulated, with no required license or minimum education. Rental managers must have real estate broker licenses, but not HOA managers. There is a wide range of qualification and experience in the field, and credentials indicate experience and commitment to the management profession. Certified Common Interest Development Business and Professions Code 11502 allows one to be called a “Certified Common Interest Development Manager” after 30 class hours in certain topics from a professional association of common interest development managers. Section 11504 requires managers to annually disclose whether they qualify as “Certified” and prohibits managers from falsely claiming to be certified. While certification is not mandatory, the disclosure is. The organizations educating and credentialing California managers are the Institute of Real Estate Management (“IREM”); California Association of Community Managers (“CACM”), Community Association Manager International Certification Board (“CAMICB”), and the Community Associations Institute (“CAI“). IREM IREM is a national organization, with about 18,000 manager members, offering education and credentials regarding all forms of property management. Although its managers are mostly non-residential, over 300 of its members in California hold a residential management credential called the “Accredited Residential Manager (ARM)”. The ARM requires 44 class hours in either rental property management or CID management. The ARM does not qualify for “Certified” status in California. CACM CACM is a California organization, founded in 1991 by a group of veteran managers. 1,618 active managers currently hold CACM’s primary credential, the Certified Community Association Manager (“CCAM”). The...