Shaken Up About Earthquake Insurance

Shaken Up About Earthquake Insurance

Hi Kelly, I live in a 100+ unit condo complex without HOA earthquake insurance. I have CEA earthquake insurance for my home. Have you written any articles I could read on how to cover myself if my building suffers structural damage? Thank you, R.M., San Diego Mr. Richardson, Is a planned development HOA required to maintain earthquake coverage insurance? Our association is considering dropping this coverage in order to save money. B.W., Huntington Beach Kelly, My daughter recently purchased a condominium. The financial reserves of the HOA seemed strong, good property management, no obvious area of neglect. However, the HOA does not carry earthquake insurance and on its website suggests you get your own. I can’t find an insurance company that will issue earthquake insurance for just one unit particularly since the fire and general casualty insurance is with the HOA. Any suggestions? L.M., Fountain Valley Dear Mr. Richardson, Our condominium HOA board decided to make common area upgrades rather than obtain earthquake insurance. They feel it is too expensive. I think this is foolish, if not negligent, as it puts the equity of all owners at risk. Do you feel obtaining earthquake insurance is an obligation of the board? Thank you, J.H., Laguna Hills Dear R.M., B.W., L.M. and J.H., Most HOA and residential insurance policies contain an exclusion for damage resulting from earth movement. Owners can purchase an amendment to that insurance, commonly called “earthquake insurance,” in which the insurer agrees to pay for a certain amount of earthquake damage. Many LA County HOAs learned in 1994 after the Northridge Quake how helpful it can be to have earthquake...
Is it Exclusive Use Common Area? Part 3

Is it Exclusive Use Common Area? Part 3

Hi Kelly, I was interested in your recent answer that a club’s storage space would not be considered exclusive use common area. Statewide there are thousands of HOAs with swim teams, tennis teams, bridge clubs, etc using HOA facilities. Surely this is also permissible if the board gives its blessing?  Regards, L.Q., Concord Dear L.Q., Exclusive use areas are defined by Civil Code 4145 as areas serving one or more members and are appurtenant to the interests of those members. A club storage room or closet space may be allocated by the HOA board, but since it is not dedicated to a single home or group of homes, it would not be “exclusive use” under the statute. Therefore, the Civil Code 4600 vote requirement would not apply to that allocation. Thanks for your question,Kelly Hi Kelly, We were told by a board member that the patio attached to our unit is “common area with exclusive use rights” for us, but no one seems to have any documentation. The neighbor behind us disputes this and is now asking for documents showing that the patio is ours (or is for our exclusive use), but we cannot locate anything saying so. We asked the management company for documents related to this, but they don’t have anything, and I couldn’t find anything in the CC&Rs. How can I prove that we are the only ones who can use the patio (or is it possible to show that we own it?)? Thank you, L.G., Beverly Hills Dear L.G., Exclusive use common areas are hopefully defined by the CC&Rs and Condominium Plan, but if they...
How Exclusive is Exclusive Use Area? Part 2

How Exclusive is Exclusive Use Area? Part 2

Hi Kelly, I live in a condo complex in which the restricted common area is the front and back yards of each unit. The board says it has the authority to grant permission to an owner to make room additions in the backyard. I do not believe they have such authority as it would be “giving” ownership of the restricted common area which would then be enclosed in his unit. Do you believe the owner can build an addition to his unit? Thank you, P.W., San Diego Dear P.W., First, the unit is not defined by what the board says, but by the condominium plan. That recorded document is part of the legal description of the condominium. If one adds living space to the unit, that new living space, outside the boundaries of the original unit, is still common area. This could create a significant disclosure problem for members, who surely will want to disclose the larger square footage even though they do not own that space. If such a modification to a home were to be allowed, a written agreement between the HOA and the homeowner is essential. Such agreement should, at a minimum, reflect that the homeowner is responsible for the new structure, the HOA has no responsibility to insure, repair or maintain it, and it still is common area. Another issue is whether the board violated Civil Code 4600, which requires a 2/3 vote of the membership before the HOA allows a homeowner to convert “pure” common area to exclusive use. Some may argue that the area already was exclusive use. There are also some exceptions to...
Recall Questions: Part 2

Recall Questions: Part 2

Kelly, Our HOA recently had a total board recall and election. The new (self- appointed) president handed out terms based on votes received, with three two-year and two one-year terms. Our bylaws specify a procedure for the first election, namely drawing of lots to determine terms, to be two (two-year) and three (one-year). Subsequent elections should be for two-year terms, for a staggered election pattern. Should the president have followed the bylaws’ first election procedure, as the situation is identical, or should the president have given more two-year terms than is specified? I can’t find the answer anywhere on the Internet. J.T., San Jacinto Dear J.T., First, president does not appoint offices or board terms and is one vote out of the five who should be making that decision. Having not seen your association governing documents, I cannot say exactly what was required to happen. Normally, when an association begins to use staggered terms, the first election will have directors with the higher vote totals receiving the longer terms. We normally draft such bylaw provisions or amendments that way. If everyone received two-year terms the staggering would be destroyed so your suggested approach makes sense, if it does not violate the governing documents. Best regards,Kelly Dear Mr. Richardson, We had a five-member board. Two of the members did not like the others, organized a total board recall election, recalled the entire board, and then ran again and won. Is this legal besides being unethical? E.F., Temecula Dear E.F., Directors are also members and at election time can personally support or oppose who they choose as directors. What directors cannot...
Recall Questions: Part 1

Recall Questions: Part 1

Dear Kelly, In our recent HOA election, one new member was elected but resigned six weeks later. There is an all-out war between the four remaining directors. All business has stopped due to the inability of the four to agree on anything that needs a vote. Homeowners want the board to appoint the next in line from the last election, two board members will not agree to this. We have cumulative voting and I understand recalling anyone less than the entire board is very difficult, no? We are being told that our bylaws require 25% of the owners to demand a special election. Is this so? K.C., Mission Viejo Dear K.C., Very sorry to hear of the discord within your board. Recalling the entire board is one possibility, which normally requires approval of a majority of a quorum of the members. Pursuant to Corporations Code 7222(b)(1), associations with cumulative voting find it much harder to recall a single or a few directors, because under that statute “no” votes are multiplied by the number of authorized seats, so it takes many more “yes” votes to remove a director. However, a less hostile alternative would be simply to ask the board to set a special election to fill the open seat. Another option, undesirable due to its cost, would be to ask the Superior Court to appoint a provisional director to break the tie and get a special election set. As to the minimum members necessary to petition for a special membership meeting, Corporations Code 7510(e) says that 5% or more of the members can petition for such a meeting. If the...
Conduct Policy With a Forced Waiver?

Conduct Policy With a Forced Waiver?

Kelly, Our board instituted an ethics policy for all directors and committee members. The first requirement is that all nominees for directors sign a confidentiality promise and promise they will never sue the board. If a board member does something wrong, illegal or unethical, how can we get relief if we sign away our rights to sue? The board’s current attorney wrote this policy because we have had board members suing the board for problems they could not resolve among themselves. Why should any candidate for the board sign their rights away? Is this even legal? S.K., Encino Dear S.K., Board ethics and conduct policies are a great idea for associations, and can apply to directors, committee chairs, and committee members. Such policies can make a strong statement about the association’s values and build members’ confidence in their volunteer leadership. Eligibility standards for board candidacy or for board service should not be in the conduct policy but should be stated in the bylaws or election rules. However, if Senate Bill 323, currently pending in Sacramento, becomes law it will require that all board eligibility requirements be stated in bylaws and will not allow such standards to be in board-adopted election rules. That bill is in process in the Assembly, with some increasing opposition after passing the Senate on a divided vote. The Community Associations Institute has a Model Code of Ethics for Community Association Board Members, which can be found by CAI members at www.caionline.org/homeownerleaders. That is a good place to start. A code of ethics/conduct can be adopted by the board as an operating rule, to make it...
Is It My Parking?

Is It My Parking?

Good morning Mr. Richardson, I discovered a problem with my deeded garage. Long story short my deed does not reflect the garage I was given. I have been fighting to retrieve what I paid for at the beginning. After a unit above my current located garage sold, I lost all power to the garage. HOA was contacted and they discovered the problem. Shouldn’t somebody have caught this issue before the sale? There is a whole mess here and all we want is what we paid for at the beginning. I look forward to your reply. Thank you, T.M., Brea Dear T.M., The first question is, do you own the garage or is it common area owned by all? Normally this is established when the condominium project is created. Sometimes, parking spaces or garages are designated by the Condominium Plan, an underappreciated but important document. Sometimes garages are designated by the Condominium Plan as part of the unit or described as exclusive use common area. CC&R’s unfortunately rarely include a parking list specifying which spaces are assigned to which units. If the Condominium Plan did not create a legal interest in the garage, the seller may have “sold” something which the seller never owned in the first place. Another problem arising from the lack of specificity regarding parking is that owners over the years will trade spaces or cede parking rights to another owner – without any documentation as to how this was done. The problem often surfaces when an association member claims they “acquired” a parking space from another owner, despite the fact that parking spaces are common area...
Can’t We Have a Satellite Dish?

Can’t We Have a Satellite Dish?

Dear Kelly, I am in an HOA of free-standing homes. Our CC&Rs require that satellite dishes cannot be visible from common areas or HOA streets. Yet, several members have installed small dishes, less than 36” across, on their own property, visible from common areas and HOA streets. I registered my complaint, but the management company maintains that FCC regulations stipulate that they are allowed and that FCC regulations supersede CC&Rs and that our CC&Rs are outdated. What is the current situation regarding FCC regulations in this matter? A.D., San Diego Dear A.D., The FCC “Over The Air Receiving Devices (OTARD) Rule” and California Civil Code Section 4725, protect the right of residents to have satellite dishes not more than one meter (OTARD rule) or 36 inches (Civil 4725) in diameter. The state law allows restrictions based on visibility but the FCC rule does not allow such restrictions. Under the Constitution’s Supremacy Clause, the FCC regulation controls, so dishes can be visible. Therefore, your HOA’s visibility restriction standard might be invalid, and that may be why the other owners have installed visible antennae. Hopefully, your association’s legal counsel has been consulted and has weighed in on this issue, and that is why the Board is not enforcing the antennae visibility ban in the CC&Rs. Under the current satellite television technology, disputes about dishes seem to be less frequent, maybe because they now are significantly smaller (typically eighteen inches across). Thanks, Kelly Kelly, My HOA has a CC&R section proscribing outdoor antennas (other than those satellite dishes covered by the federal mandate). I assume that what legitimately concerns the HOA are...
Investing, Growing, and Withdrawing Reserve Funds

Investing, Growing, and Withdrawing Reserve Funds

Kelly, I am a member of my HOA board. Our prior management company had done all of our investments (from our direction) for our reserve funds. FDIC insured CD’s were used as we understood that they were required by California law only to invest our funds in FDIC insured funds. We saw that the interest rate income from FDIC insured funds did not cover inflation increases and considered utilizing a financial firm to assist us to find some other opportunities that better protected our reserve assets using a combination of FDIC and SIPC insured securities. We have had some questioning from homeowners if it legal for us to utilize an SIPC insured fund (versus an FDIC fund). What type of investment opportunities are legal for HOA reserve funds? Thank you, C.W., Oceanside Dear C.W., As a fiduciary of the association funds, the board must keep the members’ money secure and not subject to reduction. In the world of financial fiduciaries, if the fund shrinks, the fiduciary could be “surcharged,” meaning held personally liable for the reduction in the fund due to loss of funds. Loss of funds is not a risk with deposits in banking institutions insured by the Federal Deposit Insurance Corporation (FDIC), so long as no more than $250,000 is in any one institution. Many associations spread their reserve funds across multiple banks to keep their funds all insured within the limit. The Securities Investor Protection Corporation (SIPC, www.sipc.org) protects against a stock brokerage becoming insolvent or taking a client’s funds – but it expressly does not protect against declining investments. Associations are often tempted to place...