Sunday, October 09, 2005

New Legislation for HOA's

Last week, Governor Schwarzenegger signed three bills into law that revise the procedures used by associations for foreclosing on delinquent assessments, define rights for inspecting records, and add procedures for elections. Some of these provisions will take effect on January 1, 2006; others do not become operative until July 1, 2006. Following is a brief summary of the new legislation.

Foreclosure. SB 137 deals with foreclosures and imposes on associations a huge array of red tape before they can lien or foreclose on an owner's property. Some highlights: (1) an association cannot foreclose for less than $1,800 in delinquent assessments unless the owner is more than 12 months delinquent; (2) before recording a lien or starting to foreclose on the lien, the association must offer alternative dispute resolution ("ADR") to the owner, and if the owner agrees, the ADR must be completed before a lien or a Notice of Default can be recorded; (3) more required language has been added for the pre-lien letter; (4) an owner will have 90 days after the foreclosure sale to pay the debt and take back title to his/her home; and (5) before conducting a foreclosure sale the Association must hand-deliver notice of the sale to the owner. SB 137 also revises the "Notice - Assessments and Foreclosure" form that associations must distribute annually to their owners. This bill would allow property managers and bookkeepers to appear for the association in small claims court.

Election Procedures. Associations must adopt rules to (1) give all candidates equal access for their campaign; (2) specify voting powers, proxy issues, and the voting period, including polling hours; (3) adopt director qualifications; and (4) provide procedures for nominations, voting, and selecting inspectors of election. This bill specifies the inspector of election's duties. Any vote on assessments, elections, amendments, and granting an owner exclusive access to a portion of the common area must be done by secret written ballot. Thirty days before any vote on these issues, associations must distribute to all owners a ballot plus two envelopes, an outer envelope containing the owner's name and an inner envelope without the owner's name containing the ballot. Ballots and proxies cannot be counted as they are received by an association; this must be done in public at an open meeting, and anyone can observe the counting. The ballots and proxies are available for inspection by the members for a year after the election. Associations cannot use its funds to endorse candidates.

Inspection of Records. AB 1098 defines the records owners can inspect. It would make available for inspection, among other things, an association's general ledger, check register, canceled checks, invoices, purchase orders, billing statements, and credit card statements for the current year and the two previous fiscal years. Minutes for all years must also be made available. With some exceptions, associations must make their current year's records available within 10 days of request and prior years' records must be made available within 30 days of request. Owners would be entitled to enforce these rights in small claims court and the court could fine violating associations $500 for each denial of an inspection request. This bill also requires the approval of 67% of the owners before an association can give an owner the exclusive right to use a portion of the common area, with certain exceptions.

In subsequent newsletters, we will provide more information about each of these new laws and how best to implement them.

Very truly yours,

Jeanne H. McDonald, Esq.
Adams AuCoin & Kessler, LLP

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