L.A. Times Gets it Wrong. Homeowners Do Not Have a Right to Review an HOA’s Legal Bills.

The Times got it wrong recently when their HOA advice column recently responded to a homeowner who had been denied a request to review the association’s legal bills.

With this level of quality advice, it’s no wonder the L.A. Times‘ readership is declining.  The Times got it wrong recently when their HOA advice column responded to a homeowner who had been denied a request to review the association’s legal bills. In their question the homeowner stated that they had asked to review the association’s legal bills and received a response from the association’s attorney denying the request on the basis that the legal bills were subject to the attorney client privilege, and that a member’s right to review association documents does not extend to documents subject to the privilege.  The association’s counsel even provided a cite to Smith vs. Laguna Sur Villas Community Assn. (2000) 79 Cal.App.4th 641.  In that case, the court discussed how, as a corporation, it is the association who is the client not the individual members.  The Court went on to deny homeowners their request to review the association’s attorney bills in that matter.

The Times correctly notes that California Civil Code Section 1365.2 states, “Except as provided by the attorney-client privilege, the association may not withhold or redact information concerning the compensation paid to employees, vendors or contractors.”  However, the Times gets it terribly wrong in claiming that “the association may not withhold or redact information concerning the compensation paid to employees, vendors or contractors, including attorneys, who are just another vendor hired by the association.”

Attorneys are not “just another vendor.”  Communications with a painter, landscaper, maintenance company or manager are not subject to a privilege that makes them confidential.  Communications with attorneys are.  This is an important distinction. Civil Code Section 1365.2 specifically excludes documents which are subject to the attorney client privilege from a member’s right of review

The Times relies on Civil Code Section 1365.2(d)(1)(E)(iv) to support their answer that homeowners are entitled to review attorney bills.  However, that section only states that, for the purposes of that section, contracts for legal services are not privileged and cannot be withheld from members on the grounds that they are subject to the attorney client privilege.  However, a contract for legal services is not the same as a billing statement, which is what the homeowner wanted to review.

Contracts for legal services are simply retainer agreements. They describe the services the attorney will perform and the rate to be charged for such services. Attorney billing statements contain detailed descriptions of the work performed by the attorney.  If they were revealed, such statements could be used against the association in any pending litigation or other matters.  As the Laguna Sur Villas Community Assn. Court points out, unlike directors, residents owe no fiduciary duties to one another and may be willing to waive or breach the attorney-client privilege for reasons unrelated to the best interests of the association.

The association’s attorney was correct in responding to the homeowner’s request to review the billing statement. The Times just got it wrong.

Nevada Homeowners Associations may soon be able to Maintain Foreclosed Properties

Nevada bill AB 361 may soon provide Homeowners Associations in Nevada the right to maintain the yards of foreclosed homes within their communities without fear of being liable for trespass.

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Pending Nevada bill AB 361 may soon provide Homeowners Associations in Nevada the right to maintain the yards of foreclosed homes within their communities without fear of being liable for trespass. The Nevada State Assembly Judiciary Subcommittee heard testimony on the bill this week before referring the bill back to the full committee for consideration at a later date.

As the foreclosure crisis has spread, unoccupied, untended homes have been a growing concern for community associations for reasons of health, safety and property values. But the associations have been unable to do anything because tending to the bank-owned properties would technically be trespassing.  The proposed bill would require a lender that forecloses on a residence within a homeowners association to notify the association and provide it with the lender’s contact information.  The association would then be able to enter the property for the purpose of maintaining the grounds, the exterior and abating public nuisances. Any expenses the association incurs would be filed as a lien against the property, which would have to be paid when sold.

While this option would allow associations to recover some of the costs they will incur, it also opens up a myriad of issues such as whether the association would face any liability if it knows of squatters, or any dangerous condition on the property.  It also would create a special class of property owner.

When a bank takes title to a property through foreclosure, just like any other property owner, it is subject to the CC&Rs, including any maintenance requirements.  All other property owners in an association are required to maintain the property themselves, and do not have the option of allowing the association to take up the maintenance.  Allowing banks to fail to undertake their maintenance obligation is simply another type of bank bailout.  The association will have to front the maintenance expenses and will only recover those costs when the home is sold.  Since the association would not have any control over when the property is sold, it could potentially be faced with fronting the cost to maintain a property for months or even years.  As a result, the association (and by extension the other property owners) are faced with the expense of maintaining bank owned property, while the bank incurs no expense until the property is sold.

While creating a mechanism to allow HOAs to enter onto the land and maintain a bank owned home may seem like a good idea, it places a burden on the association and other homeowners, and creates a special class of property owner.  If an association is going to be allowed to enter onto the unkept property owned by a bank, it should be able to enter onto and maintain all unkept property, not simply foreclosed homes.

Hopefully, the bill will be amended to extend an associations’ ability to maintain any property where the owner is not meeting their maintenance obligations, not simply bank owned property.  Further, the association should continue to access the propety owner, and the bill should allow the association to assess a fine which would “encourage” banks and other property owners to undertake their maintenance responsibilities rather than relying on the association to take over those obligations.

“Green” Cement for your HOA?

With the current emphasis on being “green” this is another factor for homeowners asssociations trying to keep in mind as they undertake construction projects in the coming year.

The Construction Law Musings blog has a guest post from Kelly McGinnis of the Portland Cement Association regarding how the cement industry is aware of the environmental impacts of cement manufacturing and continues to work toward reducing those impacts.  With the current emphasis on being “green” this is another factor for homeowners asssociations trying to keep in mind as they undertake construction projects in the coming year.

What to know if you’re considering borrowing from reserves.

In California, Civil Code section 1365.5 makes it clear that a board may authorize a temporary transfer of money from a reserve account to an association’s general fund. However, such transfers are only allowed to meet short term cash flow requirements or other expenses.

borrowingIn the current economic climate, many homeowner’s associations are facing tough budget decisions as they are faced with an increasing number of members falling behind on assessment payments, while operating costs are rising.  In such circumstances, many boards are tempted to dip into reserves to meet their cash flow needs.

In California, Civil Code section 1365.5 makes it clear that a board may authorize a temporary transfer of money from a reserve account to an association’s general fund. However, such transfers are only allowed to meet short term cash flow requirements or other expenses. In addition, prior to the transfer the board must have provided notice to the members of the intent to consider the transfer in a notice of meeting stating why the transfer is needed, some of the options for repayment, and whether a special assessment may be considered. Any such transfers must be repaid to the reserve account within one year of the date of the initial transfer.  The one year repayment period may be extended briefly if the board gives the same notice required for considering a transfer and makes a finding, supported by documentation, that a temporary delay in repaying the amount borrowed from reserves would be in the best interests of the association.

The statute, as well as the board members fiduciary obligations, require that the board exercise prudent fiscal management in maintaining the integrity of the reserve accounts. The statute goes so far as to state that the board “shall, if necessary, levy a special assessment to recover the full amount of the expended funds within the [one year]”.

Any board contemplating borrowing from reserve accounts should seriously consider levying a special assessment to recover the amount needed to fund the reserves, and also consider increasing dues to meet operating expenses. In addition, if not already part of the budget, the board should consider budgeting for “bad debt” to ease the impact of late assessments on the overall financial health of the association.  Failure to do so puts the association’s assets at risk, and exposes the directors to claims for breach of fiduciary duties.

Is AB 49 Unfair to Green Homeowners Associations?

Proposed California bill AB49 requires an across-the-board reduction in water use by 2020. Such a requirement is unfair to those Homeowners Associations which have already voluntarily invested thousands of dollars and resources to reduce their water consumption, while excusing those who have done nothing.

WaterProposed California bill AB49 requires an across-the-board reduction in water use by 2020. Such a requirement is unfair to those Homeowners Associations which have already voluntarily invested thousands of dollars and resources to reduce their water consumption, while excusing those who have done nothing.

Such an amendment will reward those Homeowners Associations who have not adopted water use reduction strategies while still requiring those who have to comply with a 20% reduction.  Those Associations that have achieved significant water reduction will have to further reduce their consumption by 20%, a requirement which could have disastrous consequences for both the aesthetic appeal and health of community assets.

AB 49 is another example of the tidal wave of new legislation, regulations, and local ordinances to implement the mandates of AB 32 (The California Climate Change Solutions Act).  The AB 32 CID Advisory Council was established to monitor this type of legislation, and advise of its possible impact.

Contact me for more information on AB 49, AB 32 and its progeny.