New Laws for 2009

2008 NEW LAW UPDATE
by Jeffrey A. Beaumont, Esq. and Jasmine M. Termain, Esq.

The following is a brief summary of recently enacted and failed legislation and decided case law which will have a significant impact on common interest developments
by affecting how they are operated, including modifying assessment procedures, transfer fees, Board and manager education, Board meetings, association liability, and
management contracts.

ENACTED LEGISLATION

I. Virginia Graeme Baker Pool and Spa Safety Act
Effective December 20, 2008, this is a federal law that will require all “public” pools
and spas (which includes multi-family residential dwellings and their associations) with
submerged suction drains to retrofit drains with certain safety precautions in order to limit and prevent drowning deaths caused by people becoming ensnared in a pool’s suction drain. Should an association not be able to properly retrofit their pool drain, it must be permanently disabled until the drain can be properly conforming. The potential penalties for failing to comply are not yet established, but associations with pools and spas are strongly encouraged to immediately look into this matter in order to have adequate time to effectuate any changes. This bill is codified in Section 1404 of the Virginia Graeme Baker Pool and Spa Safety Act (Federal Law).

II. SB 1399 (Simitian) – Solar Panels and Existing Trees

Effective January 1, 2009, this bill will remove the possibility for criminal conviction
in disputes between neighbors regarding solar panels and pre-existing vegetation. The
neighbors with pre-existing trees are shielded from such convictions in this matter. This
bill is codified in Section 25981, 25984, 25985, 25982.1, and 25983 of the California
Public Resources Code.

III. SB 1137 (Perata) – Residential Mortgage Loans & Foreclosure Procedures

Effective immediately, this bill is subject to expire in 2013 unless otherwise extended
and establishes that legal owners acquiring title to vacant residential property through a
foreclosure process will be required to maintain the land. Maintenance includes removing excessive foliage growth, trespassers or squatters, excessive mosquitoes and standing water, and other matters deemed to cause a public health hazard. Should the legal owner fail to so maintain, they can be subject to civil penalties up to $1,000 per day after being provided both a notice of the pending penalty and an opportunity for a hearing to oppose the penalty. The overseeing agency can take into account the owner’s good faith efforts to maintain, can establish different compliance periods for different maintenance obligations, and any fines so collected will be directed towards the local nuisance abatement program. Also important, this law will not supersede any local ordinances, so negligent owners will not be subject to a double penalty. This bill is codified in Section 2929.3 of the California Civil Code.

IV. SB 1511 (Ducheny) – Foreclosures: Notice to the Association of the Successor in Interest Following Sale

Effective January 1, 2009, this bill provides that an association can record a legal
request that the trustee handling a trustee’s sale for a property in the association’s
community mail to the association the name and information for the party that acquires the property upon foreclosure of said property. This bill attempts to bridge the inefficiencies of the prior law which did not require this new owner information to be provided and would often leave associations without payment of its assessments for many months after the foreclosure process. This bill is codified in Section 2924(b) of the California Civil Code and is commonly known as the “Association Solvency Act.”

V. AB 2846 (Feuer) – Assessment Disputes

Effective immediately, this bill provides that owners with disputes regarding
assessments owed may pay such assessments under protest and simultaneously file a
small claims action (so long as the amount in dispute does not exceed the small claims
jurisdictional limit). This bill is codified in Section 1365.1 and 1376.6 of the California Civil Code.

FAILED LEGISLATION

I. AB 567 (Saldana) – Common Interest Development Bureau

This bill would have created the CID Bureau, at a cost of $40 million to associations
and their members, to regulate associations. The Governor elected to veto this bill on the basis that it would add an unnecessary layer of bureaucracy to the oversight and regulation of associations.

II. AB 952( Mullin) – Payment Plans for Assessments

This bill would have mandated boards to accept payment plans when an owner
could prove a need for such. The Governor elected to veto this bill on the basis that it
would likely be over burdensome for boards and also would take away the authority of
boards to know and understand the unique needs of their communities and mandate a
single solution for all.

III. AB 2559 (Mullin) – Rental Restrictions

This bill would have significantly limited associations from adopting rental
restrictions. The Governor elected to veto this bill on the basis that an association’s
CC&Rs are a contract between the parties and that if subsequent members elect to change their CC&Rs they should be able to do, especially as it relates to imposing rental restrictions.

IV. AB 2806 (Karnette) – Board Member Education Requirements

This bill would have required association board members to disclose whether or not
they have taken any education courses on common interest developments. The Governor elected to veto this bill on the basis that the current law provides board candidates access to their association’s available media outlets and permits them to disclose their qualifications for serving, so additional regulations are unnecessary.

CASE LAW

Bruni v. Didion
(2008) 160 Cal. App. 4th 1272

A home builders warranty providing that all disputes related to the home must be
arbitrated is an unconscionable, and therefore unenforceable, clause because it not only provides a far greater protection for the builder than the buyer, but it also violates a
reasonable buyer’s expectations.

Camacho, et al v. Bridgeport Financial, Inc.
(2008) D.C. CV-04-00478-CRB/MEJ

In a Fair Debt Collections Practices Act (FDCPA) case, the Act establishes the
awarding of reasonable attorneys fees and costs are mandatory when a debtor prevails in establishing the debt collector violated the Act’s policies. Further, the court clarified the calculation of “reasonable” attorneys fees should be based not only on the location where the forum (case) is located, but also factor fees charged by similar attorneys of like experience, skill and reputation and within the same time frame. Finally, in calculating the awarding of costs, the presumptive method a court must start with is the ‘lodestar’ method, not a flat fee method.

Christian v. Flora

(2008) 164 Cal. App. 4th 539

For any subdivision parcels that are resubdivided by a subsequent parcel map that
is properly recorded, said newly recorded parcel map will be deemed to have amended the provisions of any previously recorded parcel map. Essentially there can only be one final recorded map. If there are previous recorded maps, they are incorporated into the newly recorded maps. Easements previously recorded and not affirmatively included in the newly recorded parcel map shall survive and be included in the newly recorded map via incorporation.

Crestmar Owners Association v. Stapakis
(2007) 157 Cal. App. 4th 1223*

After 25 years of not having a proper deed and title to two parking spaces, which
should have been deeded to the association, the title owner of the parking spaces
demanded back-rent for the association’s use of said spaces. Upon its receipt of the
demand letter, only then did the association file a lawsuit to quiet title to the parking spaces. The court held, when enforcement of a CC&R is tied to a specific time, the statute of limitations to enforcing said provision begins when the first adverse action against it is filed. Basically, the four year statute of limitations (which would have ended in the early 1980s) to have the two parking spaces turned over to the association did not commence until the association filed its suit in 2004 seeking to quite title.

Darnell & Scrivner v. Meadows Del Mar Homeowners Association
(2008) 2008 Cal. App. Unpub. LEXIS 4189 (Unpublished opinion-not law)

An association that previously approved architectural plans and then revoked said
approval was sued by its architects. The association claimed that because its architectural review process is statutorily required it should be considered a quasi-governmental process that involves matters of public interest, and thus its anti-SLAPP motion should be granted pursuant to Civil Code Section 425.6. The court held that an anti- SLAPP motion must be based on a petitioner’s exercise of their rights to free speech, and an architectural review of one house does not fit this requirement. Also required is the fact that there is no adequate remedy at law for the underlying claim and that its impact covers a large enough group of people so as to involve the “public.”

Devonwood Condominium Owners Association v. Farmers Insurance Exchange,
(2008) 162 Cal. App. 4th 1498

An association and insurance company (Farmers) utilized the “appraisal” clause in
its liability policy for fire damage. The appraisal panel established the amount of loss, but did not address whether or not Farmers was liable for the coverage. The trial court
affirmed the appraisal award and also held Farmers liable. Farmers appealed based on
fact that while it did not dispute the amount of appraisal award, it did retain its right to
litigate whether or not it was responsible for the coverage. The appeals court agreed with Farmers, and held, an appraisal award only establishes the amount of loss and does not also establish whether or not the insurance company is liable for said loss.

Fourth La Costa Condominium Owners Association v. Seith
(2008) 159 Cal. App. 4th 563

When amending CC&Rs, an association may elect to amend its CC&Rs by the
mailing of a secret ballot. The court held that indicating a signature on the Return Receipt would be considered an approval to amend the CC&Rs unless the ballot is otherwise mailed back was proper and binding. The court further held that owners challenging a provision of the CC&Rs must show it lacks reasonableness which is defined as it being arbitrary or capricious, violating the law or fundamental public policy or otherwise imposing an undue burden on the property. Short of an owner proving these elements, a provision of the CC&Rs will be deemed reasonable.

Garretson v. Post
(2007) 156 Cal. App. 4th 1508*

The court ruled that a defendant’s special motion to strike a non-judicial foreclosure
cause of action filed under Code of Civil Procedure 425.16 (commonly known as an “anti- SLAPP” motion) did not fall under the anti-SLAPP provisions and accordingly dismissed her motion to strike. The court reasoned that a non-judicial foreclosure based on a defaulted promissory note was merely a transaction between a debtor and creditor and did not involve any constitutionally protected activities as is required under Code of Civil Procedure 425.16.

Golden Rain Foundation v. Franz
(2008) 163 Cal. App. 4th 1141

Leisure World Seal Beach, which had originally been operated and managed under
the auspices of a stock cooperative, and not a common interest development, was
nonetheless found to have the necessary characteristics required for it to fall under the
authority of the Davis-Stirling Common Interest Development Act (“Act”). Specifically, the court held it was organized like a common interest development in that: (1) each member received rights to a separate interest; (2) each member took share to a portion of a common interest; (3) it had recorded documents; and (4) it had a trust agreement which was functionally similar to CC&Rs, all of which rendered it an “association” and subject to the Act.

Harvey v. The Landing Homeowners Association
(2008) 162 Cal. App. 4th 809

A Board that dedicated a 120 foot attic space to the appurtenant units as “exclusive
use common area” was found to have performed reasonable investigation in good faith,
and with the best interests of the Association’s members and therefore its decision was
subject to judicial deference and protected by the business judgment rule. Just because
some of the directors that made the dedication were also owners of benefitted units did not render the decision impermissible because of them being “interested directors.” As such, when a Board has certain interested members, so long as a majority of dis-interested Board members vote to approve a decision after a full disclosure of the vote, the court will not interfere and will defer to sound board decisions.

Mission Shores Association v. Pheil
(2008) 166 Cal. App. 4th 789

The appeals court upheld trial court’s granting of a petition to reduce the percentage
of member approval, pursuant to Civil Code 1356. The amendment proposed to require
leases of homes within the community to be over 30-days and would also provide the
association with authority to evict tenants for CC&R violations. The court found the 30-day minimum lease requirement was a reasonable amendment to the CC&Rs in order to ensure a residential community is not used for hotel-like or transient purposes. The court further found it is reasonable to provide an association with landlord-like remedies (e.g. eviction rights) should members renting their units fail to ensure their tenants are not in violation of the association’s CC&Rs. The defendant’s argument that the ruling should be stricken because it did not obtain any mortgagee’s approval was found unpersuasive given these amendments did not impair the underlying mortgages on the properties, nor their rights.

Olson v. Automobile Club of Southern California
(2008) 42 Cal. App. 4th 1142

Civil Code Section 1025.1 only provides for a judge to award attorneys fees to the
prevailing party, and does not provide for the awarding of expert witness fees or other
similar costs not included in the plain language of the statue.

Pacific Hills Homeowners Association v. Prun
(2008) 160 Cal. App. 4th 1557

Civil Code Section 336(b), which provides for a 5 year statute of limitations applies
to lawsuits based on a violation of recorded instruments governing uses of real property,
also applies to unrecorded Rules and Regulations. While not a holding of the case,
associations should note their failure to diligently, persistently, and consistently seek
enforcement of their governing documents may result, if such an action is taken to court, in a successful laches defense. Laches essentially states the association’s case can be dismissed because of its failure to be diligent in its efforts to enforce the violation.

Peters & Freedman LLP v McMahon
(2008) 2008 WL 391190 (Currently an unpublished opinion awaiting citation
by court)

Association’s law firm filed suit against homeowners (McMahons) for libel for
allegedly defamatory statements posted on the McMahon’s website about the law firm. In response, the McMahons filed an anti-SLAPP motion to strike the law firm’s suit claiming their website postings were protected activity under Code of Civil Procedure Section 425.16 and thus subject to special protections. In an anti-SLAPP motion, the filing party bears the initial burden to demonstrate their action is based on protected activity. If the filing party can prove protected activity, then the burden shifts to the responding party to prove regardless of the activity being protected, they will likely prevail on their claim. The court held that the McMahon’s statements were not of “public” interest and denied their anti-SLAPP motion.

Richeson v. Helal
(2007) 158 Cal. App. 4th 268*

A city’s “police power” is an expansive public policy doctrine that permits a city to
regulate zoning and uses, and change such zoning and uses, as it deems necessary. As such, any zoning or use agreements entered into by a city or other governmental body will contain an inherent right to modify said agreements in their exercise of police power. Essentially, police power is not static and contracts that potentially limit the exercise of police power are unenforceable as to that limitation.

Siena Court Homeowners Association v. Green Valley Corporation
(2008) 164 Cal. App. 4th 1416

An association had a joint maintenance agreement with a neighboring association.
The neighboring association owned the underlying property at issue. The association was, by virtue of its joint maintenance agreement, required to perform the maintenance of underlying property at issue. Litigation over the property arose and the maintenance
association did not seek to join the case until after the statue of limitations had run. They sought to join as an “indispensible” party after the statute of limitations had run and the court denied their motion to intervene in the lawsuit. Basically, associations with
management agreements beware when there is a lawsuit on property that is jointly
maintained and ensure, prior to the end of any statute of limitations, your rights are
protected and represented in a lawsuit if the outcome of same may affect your rights to a settlement.

Village Northridge Homeowners Association v. State Farm Fire and Casualty Company
(2007) 69 Cal. Rptr. 3rd 551 (This case has been granted review by the California
Supreme Court and is cited at 74 Cal. Rptr. 3d 453.)

When two parties, as part of a settlement, sign a waiver of claims agreement said
agreement can be rescinded when the underlying dispute between the parties is based on an insurance contract, and not a personal injury claim. Additionally, a money-based
settlement is not required to be returned in order to litigate the rescission of the waiver.
These principals apply only to insurance related contracts.

Washington Mutual Bank v. Blechman
(2007) 157 Cal. App. 4th 662*

A homeowner sought to set aside a trustee’s sale in foreclosure. In his motion to
set aside, the homeowner did not include the seller and the trustee. The court opined that a seller and a trustee in such a case are considered indispensable parties and failure to include them as parties to the lawsuit subjected the entire suit to dismissal and thus dismissed the claim for failure to file suit against all indispensible parties.

* Denotes a case that was published in late 2007 (November or December)