California HOA Legislation: fair elections and management accountability (April 2019)

By Deborah Goonan, Independent American Communities

Homeowner advocate alert: three California HOA bills to be debated in Legislative committees. SB434 and SB754 were heard in committee for the first time this week at the Capitol. Now both are set for a second hearing, along with SB323 at 1:30 PM on April 30th.

If you live in California, now is your chance to let your lawmakers hear from you.

SB323 HOA elections

This homeowner-friendly bill is sponsored by Center for California Homeowner Association Law (CCHAL) and introduced by Senator Bob Wieckowski [D-Fremont]. The bill features several key amendments:

    • An HOA must hold an election at the end of each director’s expiring term and at least every 4 years
    • E-mail addresses, election materials would become “association records” accessible to owners
    • The current bill would require that an HOA disqualify board nominees who are not members of the association, or who have been convicted of certain felonies…

 

involving accepting, giving, or offering to give, a bribe, the embezzlement of money, the extortion or theft of money, perjury, or conspiracy to commit any of those crimes.

  • In addition, several proposed amendments would allow an HOA to follow their current bylaws to disqualify board candidates under certain conditions:
    • A candidate is not current in payment of “regular assessments”
    • A candidate who is a joint owner of the same unit or parcel belonging to a current board member or approved candidate for the board.
    • A candidate who has not been a member of the association for at least one year.
Vote HOA election scrabble
(Pixabay.com free image)

It shouldn’t be too easy for an HOA to disqualify candidates

SB323 gets very specific about disqualification of a board candidate due to nonpayment of assessments.

A “disqualifying debt” is defined as regular assessments, plus interest. If enacted as currently drafted, SB323 would not allow an HOA to disqualify a candidate for nonpayment of “fines, fines renamed as assessments, collection charges, late charges, or other costs levied by a third party.

In the event of a payment dispute with member, the HOA would be required to engage in Internal Dispute Resolution (IDR), and prove that payment is not current, before they could disqualify a board nominee.

Most importantly, SB323 adds teeth to enforce HOA election laws.

Current state law says that a court “may” throw out the result of an improperly conducted election, but SB323 changes “may” to “shall.” This small but significant change would require a court to void a contested election, unless the HOA could prove that any election errors were “unintentional” and had no effect on the results of the vote.

In the event of an election dispute, the ballots and signed voter envelopes may be examined against the HOA’s official voter list. To preserve privacy, the bill specifies “signed voter envelopes may be inspected but shall not be copied.”

Read the text of SB323

Status of SB323

Despite vicious and misleading opposition to this fair elections bill from industry trade groups, including California Association of Community Managers, California Building Industry Association, and Community Associations Institute’s California Legislative Action Committee, the Senate Judiciary Committee voted in favor of the SB323 7 to 0.

For more details on inaccurate and misleading opposition talking points, see my previous IAC post.

If you’re interested, you can download and watch the first hearing on the California Channel. See http://www.calchannel.com/video-on-demand/ and click on Senate Judiciary Committee, April 2.

The next step for SB 323 is a Senate Housing Committee, scheduled for Tuesday April 30th at the Capitol, 1:30 PM (Pacific Time).


SB434 (Archuleta)

Entitled: “Common interest developments: managing agent: production of client property and client records upon termination of management agreement”

This bill has HOA-industry sponsors: Trade Groups Community Associations Institute and the California Association of Community Managers (CACM)

I hear from quite a few homeowners that it’s almost impossible for them to get access to Association records. Believe it or not, I’ve even heard the same complaint from board members trying to get a true picture of their HOA’s financial health.

In small HOAs, board members might ignore or deny request for records. But most of the time, the HOA’s managing agent is tasked with keeping accurate records and honoring written requests for access and inspection by members.

And when a management contract is ended, all too often, a former manager is slow to hand over the HOA’s records. That makes the board’s AND the new management agent’s job even more difficult.

On this website, you can read about dozens of cases where an HOA’s records have been faked or have gone missing. When the HOA investigates, they find out that a former manager has engaged in unethical or illegal activity.

There’s clearly a need to hold HOA management agents accountable.

And, on the surface, SB434 seems like a good bill. It starts off mandating that a terminated managing agent has 30 days to hand over the Association’s records.

But…the exceptions…

But, then the bill goes on to list four BIG exceptions to that common sense rule: (my emphasis added)

(c) A managing agent shall not be required to produce client records under the following circumstances:
(1) The client records are not reasonably available because of undue burden or expense.
(2) The client records include proprietary or other trade secret information developed by the managing agent for use in the managing agent’s management business.
(3) The client records have been lost, damaged, altered, or overwritten as the result of routine good faith operation of an electronic information system.

(d) The managing agent’s obligation to honor all association confidences and to treat the business affairs and records of the association as confidential continues after termination of the management agreement. If information is sought by a third party through legal process, including subpoena or the discovery process, the managing agent’s obligations under this subdivision shall be satisfied if the managing agent gives notice to an officer of the association no later than 10 days after receipt of the subpoena, discovery request, or other legal process.

So, let’s think about this.

Fingers crossed lies deception

Excuses, excuses

If a former community association manager wants to hide records — or simply doesn’t want to be bothered by a former client —it’s quite easy to use any of these excuses to block the request.

Imagine, as a homeowner or board member, your former manager telling you, “Oh, so sorry. The records you’ve requested are lost.”

Were your HOA’s electronic records not backed up properly? Were legacy paper files trashed for unknown reasons? Maybe the ex-manager’s dog ate them?

What kind of HOA record would be unavailable, because it would reveal a “trade secret” for a management agent? Your guess is as good as mine. The terms “proprietary information” and “trade secret” are not defined in this bill.

But, how about this one — the easiest excuse of all — it’s just too darn much trouble, or too expensive, for the ex-manager to gather up the HOA’s information and hand it over to the former client. (Hmmm.. is this yet another set-up for the trade groups to require additional fees for the HOA to get its own records back?)

Lost forever

And, of course, if old records simply disappear with a former management agent, then any current or future HOA board or manager cannot possibly be expected to provide access to those records, can they?

Therefore, any HOA board member with nefarious motives and a cozy relationship with the former manager can simply “arrange” to change management companies, and then claim the former manager “lost” the records that could prove fraudulent activity.

In a small Association, where the HOA board member and Manager is the same person, it’s the perfect legal environment for a cover-up.

Incredibly, if SB434 becomes law, a former manager would not even have to honor a court order for old HOA records. The ex-manager need only “give notice” of a subpoena to the current HOA board, even if the manager never handed over all of the Association’s records in the first place.

Tell me, how would SB434 “help” homeowners and HOAs? Even the legislative analysis (linked below) points out there are gaping loopholes in the bill, all of which undermine the supposed intent of promoting good management ethics.

This bill is a lame attempt at window dressing — a bill with a title that sounds good, but means exactly the opposite.

CCHAL opposes the bill, and urges homeowners to contact their lawmakers to vote NO on SB434.

There’s a hearing at the Capitol today.

Here’s the text of SB434:


SB754, Elections by Acclamation (Moorlach)

More HOA-industry sponsors for this bill, including a large-scale HOA: Laguna Woods Village, Trade Groups Community Associations Institute and the California Association of Community Managers (CACM)

Once again, the management industry trade groups are trying to avoid holding HOA elections. And this year, Laguna Woods Village, a large HOA-governed community, is teaming up with them to push for election by acclamation.

Here’s how that would work.

As soon as your HOA gets enough “qualified” nominees — no more than one for each open seat — they could close nominations and simply declare their “approved” candidates as official board members.

Obviously, this bill must be considered in conjunction with SB323. The more barriers the HOA creates for potential board candidates, the easier it is to limit the number of nominees and avoid having an election.

Precedent for election by acclamation?

CAI and CACM insist that since local governments can use election by acclamation, when candidates run unopposed, then HOAs should, too.

Well, if you read the bill analysis, you’ll see that California citizens have the right and the opportunity to petition their school board to hold an election anyway. And a municipal government can choose to hold an election and allow write-in votes.

Those “checks and balances” are not included in SB434.

So, it’s apples vs. oranges comparison.

piggy_bank-affordable-housing

Are California HOA elections too costly?

To listen to Laguna Woods Village, you’d think that the cost of running an election for their HOA would financially devastate its members, preventing homeowners from making ends meet every month.

But, take a look at the Legislative analysis: (my emphasis added)

Purpose of the bill. The author states that elections are very expensive for large HOAs. Laguna Woods Village, the sponsor of this bill, serves more than 18,500 members, the vast majority of which are of modest means, living on fixed incomes. When an election is uncontested, it is a terrible and unnecessary drain on people with limited incomes. Laguna Woods Village has spent $60,000 on uncontested elections each year in the last two years alone. Most of Laguna Woods Village elections are uncontested, despite the best efforts of HOA leadership to recruit candidates. Yet the HOA board must hire elections officials, print and mail ballots, and conduct costly elections, shifting precious resources away from other important community needs. This bill seeks to remedy this situation by providing a process through which a board may initiate an election by acclamation when the number of candidates does not exceed the number of available seats on the board.

Let’s do the simple math:

$60,000 divided by 18,500 members = $3.24 per member, per year.

Seriously? The industry wants you to believe that few dollars per year — the cost of a cup of coffee — would cause a major financial hardship for HOA members.

Ridiculously deceptive political tactic.

Especially when you consider that, if members cannot easily elect new board members, they could be stuck paying thousands of dollars in higher HOA assessments for unnecessary or inflated contract work on the common elements.

You know, those pet projects of board members who fight tooth and nail to maintain control over the collective bank account of the Association.

Both CCHAL and the California Alliance for Retired Americans oppose this bill, and will testify at a hearing at the Capitol today.

Read the text of SB754