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.

Your HOA board was not properly elected. Are its actions valid?

Are the actions taken by a board who may have been improperly elected valid?

VoteAre the actions taken by a board who may have been improperly elected valid?  This question can hamper the governance of an association by calling into question all actions taken by a board where there where some procedural imperfections in the election that seated the board.  California state Senator John Benoit has introduced AB 259 to reslove this issue.  AB 259 is intended to avoid disruption in the governance of an HOA by preventing the voiding of actions taken by a board when the board’s election had some procedural irregularities, unless the court finds that the action of the board was contrary to law or to the governing documents.

Once enacted, this bill should help any board facing a challenge to an election months after the election.