New Law Requires HOAs to Repair Utilities

| Jay Drake
HOAs

California Senate Bill 900 (SB 900), effective January 1, 2025, introduces significant changes to the responsibilities of homeowners associations (HOAs) in common interest developments, particularly condominiums.  The legislation mandates that HOAs take immediate action to repair utility service interruptions originating in the project’s common area, such as gas, heat, water or electrical service, even if the issue extends into individual units.  Repairs must commence within 14 days of the disruption.

Key Provisions Impacting Condo Owners and HOAs

  1. Expanded Repair Responsibilities.  SB 900 amends Civil Code Section 4775, part of the Davis-Stirling Common Interest Development Act, to require HOAs to repair or replace utility services that begin in the common area of the project, even if the issue extends into individual units – unless otherwise provided in the project’s declaration, or unless the utility service that failed is required to be maintained, repaired, or replaced by a public, private, or other utility service provider.  This includes utilities like gas, heat, water or electrical service.  The HOA must commence repairs within 14 days of the service interruption.
  1. Emergency Assessments and Loans.  If an HOA lacks sufficient funds in its reserve account to cover these repairs, SB 900 allows the HOA board of directors to levy emergency assessments without a vote of the HOA members.  Additionally, HOAs can secure loans for necessary repairs without member approval.
  1. Reserve Study Requirements.  SB 900 also amends Civil Code Section 5550 to require that utility lines be explicitly listed as line-item components in future HOA reserve studies.  This requirement ensures proper financial planning for maintenance and replacement of utility infrastructure.

Controversial Aspects of SB 900

One concern with the new law is the potential financial burden on homeowners.  The ability of HOA boards to levy emergency assessments without a membership vote means that individual homeowners could face significant costs for repairs.  The legislation grants HOA boards the authority to declare an emergency and initiate repairs without a membership vote, raising concerns about the concentration of decision-making power and the potential for misuse.

Steps HOAs Can Take in Response to SB 900

HOAs should examine their governing documents to determine the extent of their responsibility for utility repairs.  If the documents are silent on this matter, SB 900’s provisions will apply.  HOAs must ensure that utility lines are included as line-item components in their reserve studies.  This will facilitate proper financial planning for maintenance and replacement of utility infrastructure.  HOAs should develop clear protocols for responding to utility service interruptions, including timelines for initiating repairs and procedures for levying emergency assessments or securing loans if needed.

SB 900 represents a shift in the responsibilities of homeowners associations in California, particularly concerning the maintenance and repair of utility services.  While the intent is to ensure timely repairs and minimize disruptions for residents, the law has introduced concerns regarding financial burdens on homeowners and the authority of HOA boards.  Condominium owners and HOAs should closely examine the implications of SB 900 to understand how it affects their rights and obligations.

 

Authored by Reuben, Junius & Rose, LLP Partner, Jay Drake.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben, Junius & Rose, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

2025 Brings New HOA Election and Voting Rules

| Michael Corbett
voting

The Davis-Stirling Common Interest Development Act (California Civil Code Section 4000 et seq.) (“Act”) is the primary body of law governing residential common interest developments (“CIDs”) and homeowners associations (“HOAs”) in California.  Several bills – such as those relating to HOA elections, the permissibility of electronic voting, maintenance responsibilities for public utilities serving CIDs, and dispute resolution procedures for construction defect claims – were recently enacted by the state legislature and signed into law by Governor Newsom.  These modifications to the Act have since been codified in the California Civil Code and became effective January 1, 2025.

The following is a brief summary of the 2025 changes to the Act, which HOAs and boards of directors should take into consideration, and where appropriate, update the governing documents applicable to the CID which they oversee.

New Electronic Voting Rights and Procedures

Assembly Bill No. 2159 authorized and established several new procedures and protocols enabling electronic voting for HOAs and its members.  These changes now permit HOAs to adopt electronic secret ballot voting under specific conditions while maintaining transparency and security.  To effectuate these modifications, amendments have been made to California Civil Code §§ 5105, 5110, 5120, 5125, 5200, and 5260.

  • Civil Code Section 5105 – Election Rules.  Rules relating to electronic voting have been added, including requirements for both inspectors of elections and member options to switch between the use of electronic and written ballots.  Additionally, floor nominations are prohibited when using electronic ballots, though they remain allowed with paper ballots.
  • Civil Code Section 5110 – Inspectors of Election.  Updates have been made to address and clarify the role and responsibilities of inspectors of elections in electronic voting.  Specifically, Civil Code § 5110 was amended to allow HOAs to conduct all votes by electronic voting – including those by secret ballot – except those relating to the approvals of proposed increases to regular and/or special assessments.  For elections by electronic secret ballot, § 5110 further provides technical requirements aimed at bolstering the security of the voting system, including those relating to the authentication of the identity of HOA members, and the separation of voter identity from the vote cast.
  • Civil Code Section 5120 – Association Records and Enhanced Records.  Provisions have been added to help ensure the integrity and security of electronic ballots.  Specifically, § 5120(c) was modified to mandate that a person, including a member of the HOA or an employee of its management company, be prohibited from opening or otherwise reviewing any tally sheet of votes cast by electronic secret ballots before the time and place at which the ballots are counted and tabulated.
  • Civil Code Section 5125 – Custody of Election Materials.  To account for the new 2025 electronic voting rights described herein, § 5125 was updated to incorporate any “tally sheet of votes cast by electronic secret ballot” into the procedures governing the existing custodial requirements of election inspectors in maintaining election materials.
  • Civil Code Section 5200 – Association Records and Enhanced Records.  The definition of “Association election materials” under § 5200(c) was expanded to include electronic voting records; specifically, the tally sheet of votes cast by electronic secret ballot.
  • Civil Code Section 5260 – Requests That Must be in Writing.  To account for the aforementioned changes to electronic voting procedures, subsection (g) was added to § 5260 to require any “request to opt out of or opt into electronically voting by electronic secret ballot” be delivered in writing to the HOA.  Guidelines were also added addressing notification requirements for HOA members related to electronic voting.

Quorum Adjustments for Elections

Assembly Bill No. 2460 made several clarifications and updates to Civil Code § 5115 relating to HOA elections and quorum requirements, while also accounting for and being in harmony with the new electronic voting rules and procedures, including those for secret ballots, as described above.

  • Civil Code Section 5115 – Voting Procedures.  § 5115 of the Act (and Corporations Code § 7512) have been amended to provide that, the absence of a quorum for purposes of member elections, an HOA would be authorized to adjourn the meeting to a date at least twenty (20) days after the adjourned meeting, at which time the quorum required for purposes of a reconvened meeting would be twenty percent (20%) of the members, whether voting in person, by proxy, or by secret ballot.  These amendments further require HOAs to provide general notice of such reconvened meetings no later than fifteen (15) days prior to the date of the reconvened meeting.  Further, an HOA whose governing documents require a quorum for election of directors, are to provide general notice of a statement that the association may call a reconvened meeting to be held at least twenty (20) days after a scheduled election if the quorum is not reached, as specified.  Finally, in the absence of a quorum, an HOA is now authorized to adjourn a meeting to a date at least twenty (20) days after the adjourned meeting, at which time the quorum required for purposes of a reconvened meeting would be twenty percent (20%) of the members, whether voting in person, by proxy, or by secret ballot.

 

Authored by Reuben, Junius & Rose, LLP Attorney, Michael Corbett.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben, Junius & Rose, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

NEW STATE LAWS AIM TO SIMPLIFY HOA GOVERNANCE

| Jay Drake

Assembly Bill 648 – HOA Meetings by Teleconference.

In an effort to enable greater access to homeowners association (“HOA”) meetings, and enhance HOA members’ ability to participate and comment on matters of interest, the Davis-Stirling Common Interest Development Act, the primary body of law governing HOAs in California, was amended to allow HOA meetings to be held by teleconference.

Assembly Bill 648 was signed into law and became effective on January 1, 2024.  AB 648 adds Civil Code Section 4926 to the Davis-Stirling Act.  Prior to passage of AB 648, Civil Code Section 4090 required meetings of an HOA board of directors (“Board”) to be held in-person at a physical location, or by teleconference only in certain situations.

Newly added Civil Code Section 4926 allows a meeting of the HOA members or meeting of the Board to be conducted entirely by teleconference (including video conference), without any physical location being held open for the attendance of any HOA member or director on the Board (“Director”) if specified conditions are satisfied. These conditions include, among others, a requirement that the notice for the meeting provide clear instructions on how to participate by teleconference, and each HOA member and Director must have the same ability to participate that would exist if the meeting were held in person.  Also, the telephone number and email address of a person who can provide technical assistance with the teleconference process, both before and during the meeting, must be provided in the meeting notice.

These teleconference provisions do not apply to an HOA meeting at which ballots are counted and tabulated pursuant to Civil Code Section 5120.

Assembly Bill 1458 – Reduced Quorum for HOA Board Elections.

In order to streamline the process for election of Directors to HOA Boards, the Davis-Stirling Act was amended to allow for reduced quorums in certain situations.

HOAs are required to periodically hold elections for the Board of Directors.  The governing documents of many HOAs include a quorum requirement for any election of Directors.  A quorum is the minimum number of HOA members that must be “present” – either in person or via mailed ballots – in order to make the election valid.  An HOA’s governing documents may require a majority (at least 51%) of HOA members to participate for the election to be valid.

A number of HOAs report having trouble meeting quorum requirements for Board elections due to lack of participation by the HOA members.  This inability to reach a quorum can prevent an HOA from electing Directors to its Board in a timely manner.  An HOA may have to hold multiple elections in an attempt to reach the required quorum of its members.

Assembly Bill 1458 was signed into law and became effective on January 1, 2024.  AB 1458 amends Civil Code Section 5115 of the Davis-Stirling Act and Section 7512 of the Government Code.

Civil Code Section 5115 as amended provides that if an HOA fails to reach a quorum required by its governing documents for an election of Directors, then unless a lower quorum is authorized by the HOA’s governing documents, the HOA may at a subsequent election reduce the required quorum to 20% of the HOA members voting in person, by proxy, or by secret ballot.  This means that only 20% of the HOA members will have to participate in an election of Directors for the election to be valid.  This reduced quorum requirement should allow Directors to be elected in a timely manner notwithstanding a lack of participation by many HOA members.  The HOA must provide specified notices to its members before reducing the quorum.  Similar amendments were made to Section 7512 of the Government Code.

Managing an HOA can be challenging given that HOA members and Directors often lead busy lives and may find it difficult to fully participate in the HOA.  These new State laws should facilitate greater participation in and efficient operation of HOAs for the benefit of all members.

 

Authored by Reuben, Junius & Rose, LLP Attorney Jay Drake.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben, Junius & Rose, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

New State Condo Law Allows Reduced HOA Assessments for Designated Affordable Units

| Jay Drake

We are following up on a previous update where we discussed Assembly Bill 572.  After undergoing a few amendments in the State legislature, the Bill passed and became effective January 1, 2024.  AB 572 amended Section 5605 of the California Civil Code, which is part of the Davis-Stirling Common Interest Development Act.

The amended law, with certain exceptions, prohibits a homeowners association (HOA) that records its original declaration (CC&Rs) on or after January 1, 2025, from imposing an increase of a regular assessment on the owner of a deed-restricted affordable housing unit that is more than 5% plus the percentage change in the cost of living, not to exceed 10% greater than the preceding regular assessment for the HOA’s preceding fiscal year.

In a significant break from previous State law and regulations, a qualifying HOA may impose an assessment against an owner of a deed-restricted affordable housing unit that is lower than the assessment imposed against other unit owners according to the proportional ownership of total subdivision interests subject to assessments.  This change would appear to allow an HOA to require market-rate unit owners to subsidize affordable unit owners with respect to payment of certain HOA assessments.

The new law is not all encompassing.  As stated above, it only applies to new common interest developments that record their original CC&Rs on or after January 1, 2025.  It also does not apply to any of the following:

  • A development of 20 units or fewer.
  • A development where the percentage of the units that are deed-restricted affordable housing units exceeds the percentage required by an applicable zoning ordinance in effect at the time the development received final approval.
  • A development that is located within a city, county, or city and county that does not have an applicable zoning ordinance requiring a percentage of deed-restricted affordable housing units and meets either of the following conditions:
    • The percentage of the units that are deed-restricted affordable housing exceeds 10 percent of the total number of units in the development at the time the development received final approval.
    • For certain other developments that were approved for streamlined processing pursuant to Section 65912.124 of the Government Code, the percentage of the units that are deed-restricted affordable housing exceeds 15 percent of the total number of units in the development at the time the development received final approval.

The well-intentioned law is designed to protect owners of designated affordable housing units from large increases in HOA assessments.  Owners of affordable housing units are typically low or moderate income and large increases in HOA assessments can be a financial burden, and can jeopardize their ability to afford the HOA assessments along with the monthly mortgage and other costs of home ownership.

Critics of the new law argue that it could lead to disproportionate financial burdens on homeowners who cannot afford to subsidize others as well as create inequities and divisions within the community by identification of a class of affordable housing or low-income owners, which could lead to resentment among other owners.

Critics also point out that the law may undermine the ability of HOAs to raise the necessary funds to maintain the community by limiting assessment increases for all owners in the HOAs effort to avoid unequal assessments, resulting in artificially low budgets, and/or deferred maintenance and repair obligations.  Artificially low assessments could eventually require multiple special assessments to fund HOA budget shortfalls.

Authored by Reuben, Junius & Rose, LLP Attorney Jay Drake.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

State Law Would Limit HOA Assessments for Affordable Units

| Jay Drake
affordable unit

Assembly Bill 572, introduced by Assembly Member Matt Haney of San Francisco, would place a cap on assessment increases a condominium homeowners association (HOA) could impose on a deed-restricted affordable unit, subject to certain exceptions.  AB 572 would amend California Civil Code 5605, part of the Davis-Stirling Common Interest Development Act, to prohibit an increase of the HOA regular assessment for a deed-restricted affordable unit that is more than 5% greater than the preceding year’s regular assessment, or that is greater than the annual percentage change in cost of living, whichever is larger.  The maximum increase for a deed-restricted affordable unit would be 10% greater than the preceding year’s regular assessment.  The “percentage change in the cost of living” would be determined using the Consumer Price Index for the region where the project is located.  The limitation would not apply to a development where 30% or more of the units are deed-restricted affordable units.

Civil Code Section 5605 already provides that an HOA board of directors may not impose a regular assessment that is more than 20% greater than the regular assessment for the HOA’s preceding fiscal year without the approval of a certain number of the HOA members.  The proposed amendment to Section 5605 would extend this existing rule by further limiting such increases as applied to deed-restricted affordable units.

Under current state law, there is no difference between the assessments paid by affordable and market-rate units.  Having one group of owners pay more and subsidize another group of owners who receive the same benefits and services is not allowed.

It may be well-intentioned, but AB 572 is somewhat controversial and opposed by some industry groups for a few reasons.

This new law could result in the affordable units paying less than the market-rate units for the same services and benefits.  This disparate treatment could breed resentment from the market-rate owners, who were not part of the original approval of the project and imposition of affordable housing requirements, yet could be burdened with the responsibility of paying a disproportionate share of assessments and subsidizing the affordable units in the project.  This could be viewed as unfair to the market-rate unit owners.

This new law is also seen by some as designating affordable unit owners as a separate class of homeowners, which could create inequities and sow division among the residents of the community.

There is also concern that in order to avoid any controversy, an HOA might decide to cap all increases in HOA assessments at an artificially low amount in order to keep the assessments the same for all units.  This could result in an HOA reducing services and deferring necessary maintenance, and could also result in large special assessments down the road to make up for insufficient HOA funds.

AB 572 is currently processing in the State legislature. We will continue to monitor and report back if the bill passes and becomes law.

 

Authored by Reuben, Junius & Rose, LLP Partner Jay Drake.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

New State Laws Affecting Condo Homeowners Associations

| Jay Drake
HOAs

There are relatively fewer new state laws affecting condominium homeowners associations (“HOAs”) in 2023 than in recent years. However, one particular bill was passed by the California State legislature that includes important changes condominium owners and HOAs should be aware of.  Assembly Bill 1410 made a few significant changes to the Davis-Stirling Common Interest Development Act, which is the primary state law affecting condos and HOAs.  These new laws became effective January 1, 2023.

As we have previously reported over the past few years, the state legislature has been making an effort to increase affordable housing in the state.  To that end, the ability of HOAs to restrict rentals of condo units has been curtailed.  Assembly Bill 3182, passed in 2020, amended Civil Code Section 4740 to limit the power of HOAs to enforce restrictions on a homeowner’s ability to rent his or her unit.  AB 3182 also added new Civil Code Section 4741, which provides that HOAs cannot require a minimum rental term of greater than thirty (30) days.  Section 4741 also states that HOAs cannot enforce a cap on the number of units that may be rented at greater than 25%.  Units that are owner-occupied where only a portion of the unit is rented, or an accessory dwelling unit (ADU) that is part of the unit is rented, do not count towards any such rental cap.  The effect of this is to limit restrictions on rental of ADUs and a unit owner’s ability to rent rooms in his or her unit.

AB 1410 furthers the state legislature’s objective of increasing affordable housing by adding a new section 4739 to the Civil Code.  Section 4739 provides that an HOA’s governing documents cannot prohibit an owner from renting out a portion of his or her unit so long as the owner occupies the unit and the rental term is for more than 30 days.  This has the effect of allowing more short term rentals so long as the rental period is for more than 30 days.

AB 1410 also amends Civil Code Section 4515 to provide that an HOA’s governing documents cannot prohibit a member or resident from exercising free speech by using social media or other online resources to discuss certain matters, even if the content is critical of the HOA or its governance. Such matters include development living, HOA elections, proposed legislation, government elections, and other issues of concern to members and residents of the community.  This does not mean an HOA has to provide any social media or other online resources to its members, and an HOA does not have to allow members to post content on the HOA’s website.  This new law seems to be fixing a problem that is not widespread, but has become an issue in some HOA communities.

Finally, AB 1410 prohibits an HOA from pursuing any enforcement actions for a violation of its governing documents during a declared state or local emergency if the nature of the emergency makes it unsafe or impossible for the owner to either prevent or fix the violation.  The only exception is an enforcement action relating to an owner’s nonpayment of assessments to the HOA.  This rule is clearly intended to give homeowners some leeway to comply with an HOA’s governing documents during government imposed emergency declarations.

 

Authored by Reuben, Junius & Rose, LLP Attorney Jay Drake.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

Inspection Requirements – Elevated Elements in CIDs

| Michael Corbett
inspection

Civil Code Section 5551, a statute within the Davis-Stirling Act and applicable to common interest developments with three (3) or more unit, obligates homeowners’ associations (“HOA”) to satisfy certain inspection requirements of all exterior elevated elements within a project that are more than six feet (6’) off the ground and supported in substantial part by wood or wood-based products. Examples of such exterior elements include balconies, decks, stairways and walkways.

These visual inspections – used to determine whether these elements are in a generally safe condition and performing in accordance with applicable standards – must be performed by a licensed structural engineer or architect, with the initial inspection being completed by January 1, 2025.[1] Thereafter, subsequent inspections must be undertaken and completed at least every nine (9) years.

Based upon the inspector’s visual inspections, further inspection, and construction and materials expertise, the inspector must then prepare and issue a written report containing the following information:

(1) The identification of the building components comprising the load-bearing components and associated waterproofing system.

(2) The current physical condition of the load-bearing components and associated waterproofing system, including whether the condition presents an immediate threat to the health and safety of the residents.

(3) The expected future performance and remaining useful life of the load-bearing components and associated waterproofing system.

(4) Recommendations for any necessary repair or replacement of the load-bearing components and associated waterproofing system.

Civ. Code. § 5551(e).

The inspector’s report must be stamped or signed by the inspector, presented to the board, and incorporated into the HOA’s reserve study as required by Civil Code Section 5550. Inspection reports must be maintained in the HOA’s records for two inspection cycles. Civ. Code § 5551(f), (i).

Partner Engineering and Science, Inc., will be holding a webinar to address these inspection requirements in more detail. Registration for this event may be completed here.

[1] Note: the inspection of applicable buildings for which a building permit application has been submitted on or after January 1, 2020, must occur no later than six (6) years following the issuance of a certificate of occupancy.

 

Authored by Reuben, Junius & Rose, LLP Attorney Michael Corbett.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

State Law Allows HOA Elections by Acclamation

| Jay Drake
board

The Davis-Stirling Common Interest Development Act (“Davis-Stirling Act”) is the primary body of law governing condominium projects and homeowners associations (“HOAs”) in California.  The Davis-Stirling Act generally provides for election of the HOA board of directors by secret ballot.  A change to the Davis-Stirling Act became effective in 2022 that authorizes the HOA board of directors to be elected by acclamation rather than through a typical balloting process.

Assembly Bill 502 allows for election of directors by acclamation for uncontested elections where there are the same number of candidates running for election as there are open director seats.  This means the HOA can save the considerable time and expense of the balloting process when the election is uncontested and all nominees will be elected anyway.  The following conditions contained in Civil Code Section 5103 must be satisfied for an election by acclamation to be available.

  1. The HOA must have held a regular election for directors in the last three years.
  1. The HOA must provide individual notice to the members of the election and procedures for nominating candidates at least 90 days before the deadline for submitting nominations. The notice must include the following:
  • The number of board positions that will be filled at the election;
  • The deadline for submitting nominations;
  • The manner in which nominations can be submitted; and
  • A statement informing members that if, at the close of the time period for making nominations, there are the same number or fewer qualified candidates as there are board positions to be filled, then the board of directors may, after voting to do so, seat the qualified candidates by acclamation without balloting.
  1. For a member who submits a nomination for a director position, the HOA must acknowledge receipt of the nomination within 7 business days. The HOA must also notify the nominee within 7 business days as to whether the nominee is qualified to be a candidate and, if not, the reason for the disqualification and the procedure to appeal the decision.
  1. The HOA must then provide a reminder notice of the election and procedures between 7 and 30 days before the deadline for submitting nominations. Such notice must contain the same information as the previous notice, and a list of the names of all of the qualified candidates to fill the board positions as of the date of the reminder notice.
  1. After the above has all been completed as required, the HOA board must then vote to consider the qualified candidates elected by acclamation at a meeting for which the posted agenda item includes the name of each qualified candidate that will be seated by acclamation if the item is approved.

These changes should be welcomed by many HOAs around the state.  Elections requiring a vote by secret ballot can be a significant procedural burden to HOA administration.  It is common for many associations, especially small associations, to maintain the same board members for multiple consecutive years. The changes referenced above will at least make it easier to reelect a standing board where no other owners have indicated an interest in joining the Board.

 

Authored by Reuben, Junius & Rose, LLP Attorney Jay Drake.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

HOA Liens Effective Even In Member Bankruptcy

| Michael Corbett
bankruptcy

This month, the California Second District Court of Appeal (“Court”) stopped short of prohibiting a common interest development owners association (“Association”) from recovering a portion of surplus proceeds following a nonjudicial foreclosure sale of an Association member’s townhome (“Unit”) where the Association had a recorded financial interest in the Unit.

In Cruz v. Valerio Townhomes Homeowners Association (an appeal from Los Angeles County Super. Ct. No. LS030053)[1], appellant and former Unit owner Cruz defaulted on her mortgage and the property was sold in a nonjudicial foreclosure sale. The sales proceeds exceeded the balance due on the loan, prompting the trustee to give notice of the surplus to all persons with a recorded interest in the Unit. Respondent Association filed a claim with the trustee for a portion of the surplus proceeds. Because Cruz disputed the Association’s claim, the trial court conducted a bench trial on the issue. The trial court entered judgment in favor of the Association and ordered the distribution of $94,873.97 to the Association and the remaining surplus of $20,639.98 to Cruz.

At the heart of this dispute was the validity and enforceability of a lien recorded against the Unit for unpaid assessments in late 2014. Cruz contended the Association’s claim was “full of over-billed dues and unearned and bogus fees” and not in compliance with the requirements of the Davis-Stirling Act (“Act”), the body of law governing residential common interest developments in California.

In 2015, the Association attempted to foreclose on the lien. However, a few days prior to the noticed foreclosure sale, Cruz filed a Chapter 13 bankruptcy petition, preventing the sale.

In the trial court’s tentative statement of decision, it ruled the Association had failed to establish a legally valid lien. Specifically, the Association failed to establish compliance with three (3) parts of the Act: (i) the pre-lien notice; (ii) the notice of recordation of the lien; and (iii) a legally binding vote by the Association board to record the lien. Accordingly, the trial court’s preliminary ruling held that the Association was not entitled to any surplus proceeds from the sale of the Unit.

The Association objected, requesting the trial court to recognize and consider relevant documents from Cruz’s bankruptcy case: the Association’s proof of claim for the lien and the Case Summary and Claims Register, which evidenced that Cruz failed to file an objection to the Association’s proof of claim.

The Association argued that Cruz’s failure to challenge the validity of the lien by objecting to the proof of claim in her bankruptcy case resulted in the claim being deemed allowed. The Association further contended that an allowed claim is in the nature of a final judgment and thus the principle of res judicata[2] precluded the trial court from considering the lien’s validity.

After further consideration of the Association’s argument, the trial court changed course, ruling that under res judicata, the Association’s unchallenged claim was tantamount to a final judgement. Consequently, the trial court determined it did not have the ability to reconsider the validity of the lien.

On appeal, Cruz attacked the Association’s arguments on dueling fronts: (i) the Association had waived any res judicata argument as to the validity of the lien because the Association presented independent evidence in support of the lien’s validity apart from its res judicata defense; and (ii) that collateral estoppel or issue preclusion (i.e., res judicata) did not apply in the subject case.

Both arguments put forth by Cruz were rejected by the Court, which affirmed the trial court ruling.

Waiver of Res Judicata

The Court disagreed with Cruz’s waiver position, pointing out, “waiver is the intentional relinquishment of a known right after knowledge of the facts. The burden … is on the party claiming a waiver of a right to prove it by clear and convincing evidence … and doubtful cases will be decided against a waiver. The waiver may be either express, based on the words of the waiving party, or implied, based on conduct indicating an intent to relinquish the right.” Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 31.

The Court continued, “California courts will find waiver when a party intentionally relinquishes a right or when that party’s acts are so inconsistent with an intent to enforce the right as to induce a reasonable belief that such right has been relinquished.” Waller, supra, at pp. 33–34. “The pivotal issue in a claim of waiver is the intention of the party who allegedly relinquished the known legal right.” DRG/Beverly Hills, Ltd. v. Chopstix Dim Sum Cafe & Takeout III, Ltd. (1994) 30 Cal.App.4th 54, 60.

Inapplicability of Res Judicata

The Court – correctly – began its analysis by recognizing that even where all three (3) required elements of res judicata (as described in footnote 2) have been satisfied, the Court has repeatedly looked to the public policies underlying the doctrine before concluding whether res judicata should be applied in a particular setting. Lucido v. Superior Court (1990) 51 Cal.3d 335, 342–343.

Homing in on the relevant federal bankruptcy statute, the Court cited title 11 of United States Code section 502, subdivision (a), which states a “claim or interest, proof of which is filed under section 501 of this title …, is deemed allowed, unless a party in interest … objects.” (Emphasis added) Further, the allowance or disallowance of “a claim in bankruptcy is binding and conclusive on all parties or their privies, and being in the nature of a final judgment, furnishes a basis for a plea of res judicata.” Siegel v. Fed. Home Loan Mortg. Corp. (1998) 143 F.3d 525, 529. Put simply, California courts must give full faith and credit to a final order or judgment of a federal court. Levy v. Cohen (1977) 19 Cal.3d 165, 172.

Conclusion

Because Cruz did not object in bankruptcy court to the Association’s proof of claim concerning the subject lien, the claim was deemed allowed. 11 U.S.C. § 502(a). Even if a bankruptcy case were later dismissed – as was the case in Cruz – the result would be the same. As the Court noted, the validity of the subject lien was established when the Association filed a proof of claim in Cruz’s bankruptcy case and Cruz failed to object. 11 U.S.C. § 502(a); Siegel, supra, at p. 529.

Owners’ associations throughout California should therefore not be deterred from enforcing lien rights against a delinquent member who has declared bankruptcy, and would be wise to promptly lodge a proof of claim at the outset of such proceedings to protect its financial interests against delinquent members.

[1] While Cruz is an unpublished opinion, it gives valuable insight on how future courts might deal with similar issues.

[2] The doctrine of res judicata gives certain conclusive effect to a former judgment in subsequent litigation involving the same controversy. The required elements for applying this doctrine to either an entire cause of action or one or more issues are the same: (i) a claim or issue raised in the present action is identical to a claim or issue litigated in a prior proceeding; (ii) the prior proceeding resulted in a final judgment on the merits; and (iii) the party against whom the doctrine is being asserted was a party or in privity with a party to the prior proceeding. People v. Barragan (2004) 32 Cal.4th 236, 252–253; Boeken v. Philip Morris USA, Inc. (2010) 48 Cal.4th 788, 797.

 

Authored by Reuben, Junius & Rose, LLP Attorney Michael Corbett.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

Summary of New State Condo Laws

| Jay Drake
laws

The California state legislature recently passed a number of new laws pertaining to California common interest developments and homeowners associations.  Below is a brief summary of a few of the new laws.

SB 432 – This is a follow-up to our Update on July 9, 2021, which described proposed SB 432.  This bill has now been approved and will become effective January 1, 2022.  The law makes several changes to HOA election procedures, including HOA director qualifications and term limits, retention of election materials and election notice requirements.

AB 1101 – This bill was approved on September 23, 2021, and makes changes aimed at preventing fraud and financial malfeasance in HOAs, and furthers the changes made by AB 2912 in 2018 which implemented basic protections for HOA finances.  This bill requires (i) HOAs’ accounts to be in financial institutions insured by the FDIC, National Credit Union Administration Insurance Fund, or a guaranty corporation, (ii) imposes requirements on HOAs to obtain fidelity bond insurance covering acts by HOA directors, officers and managing agents, (iii) requires written HOA board approval for withdrawals of specified large amounts from HOA accounts, and (iv) prohibits HOA managing agents from comingling funds of the HOA with the managing agent’s own funds.

AB 1584 – This is a follow-up to our Update on March 11, 2021 regarding AB 3182 which added new Civil Code 4741 that limits rental restrictions in condo projects.  That bill required HOAs to amend their governing documents to comply with Civil Code 4741 by December 31, 2021.  AB 1584, approved on September 28, 2021, modifies Civil Code 4741 by (i) allowing the HOA board of directors to unilaterally amend the HOA’s governing documents to comply with Civil Code 4741, without the approval of the HOA members, and (ii) gives the board of directors until July 1, 2022, to complete such amendment.

 

Authored by Reuben, Junius & Rose, LLP Attorney Jay Drake.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.