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Frequently Asked Questions (FAQ’s)

Q: What does a management company do?

A: A management company is contracted by the Board of Directors to provide such services as: Collection of assessments, supervision of subcontractors, obtaining estimates for subcontracted services and providing financial statements/information and income and expense reports. Also, a management company is a general clearing house for problem solving, communications with homeowners and the Board of Directors and to serve in an advisory capacity. The management company reports directly to the Board and/or a designated member of the Board.

Q: What is the Board of Directors?

A: The Association is most often (not always) a corporation by law, and therefore a governing body is needed to oversee the business of the Corporation. The Board of Directors is the elected governing body of the Corporation or a non-incorporated association. These Directors oversee and create the rules and regulations for enforcement within the community, oversee that funds are being properly budgeted and have the duty to enhance, maintain, and protect the property values and interests of the Association. The Board of Directors usually organizes several committees to aid in the decision making. Examples would be Architectural and Election Committees.

Q: How is the Amount of My Assessment (Dues) Determined and What Does it Pay for?

A: In California, the Department of Real Estate (DRE) requires a budget from the developer for his proposed development. This budget is required to be submitted to the DRE for approval prior to actual sales. The DRE has budget guidelines for all areas owned in common (the “Common Areas”) and which are the responsibility of the Association to maintain and replace when necessary. There are two areas of the budget; the Operating Accounts such as utilities, landscaping, etc. and the Reserve Accounts for future (long term) replacements such as exterior painting, re-roofing, re-paving, replacement of water boiler and/or storage tank, etc. The individual assessment amount is then determined by dividing the approved annual budget by the number of units within the Association. After the DRE approves the first budget, the total monthly assessment is then passed on to the owners. Thereafter, the Board of Directors of the Association determines, with the assistance of the property manager, the actual, ongoing needs of the Association and the dues are adjusted accordingly.

In summary, your monthly assessment covers your portion of the operation, maintenance and repairs for which the association is obligated in accordance with the Covenants, Conditions & Restrictions (CC&R’s) of your association. Items such as insurance, taxes, water, electricity, refuse collection, landscaping, pest control, security services, janitorial, etc. are some of the items covered by the monthly assessments.

A portion of your monthly assessment should go towards funding the reserve account, (also known as a “Replacement Account”), which is for the repair or replacement of major components. Roof repair, pool/spa resurfacing, fencing, painting, floor covering, mechanical replacement (i.e. sump pumps), hot water boiler and storage tank, etc. are some of the long term components that are funded via the reserve account.

Q: What Happens If I Don’t Pay My Assessment?

A: The Declaration filed with the DRE states that not paying the monthly assessment causes the owner to be subject to a lien notice when he’s 30 days past due, and allows for interest and possible late charges to be assessed. Typically, if there is no response from the owner to notification of his delinquency, a lien is filed which could result in foreclosure of the unit.

Q: Speaking of Rules and Regulations, are there any other rules?

A: Most associations have developed Rules and Regulations as provided for in the CC&R’s and adopted by the Board of Directors. Rules are established to provide direction to the homeowners and may cover parking, vehicles, pets and pool use hours, etc. In addition, your Association will adopt Architectural Guidelines with procedures for submitting requests to make changes to your home and/or building. Such changes may include patio covers, decks, landscaping, exterior color changes or extensive interior changes and additions. These rules and guidelines are set up to maintain the aesthetic value and integrity of the community on behalf of all owners, and hopefully protect the market value of your investment as well. Violations of these rules may result in action by the Board of Directors and a fine. In addition, if you proceed with an exterior improvement or change, without written approval of the Board of Directors, or Architectural Committee, as applicable, you will be required to remove or correct the alteration and/or be fined for the violation.

Q: Who is responsible for what in an association?

A: The Organizational hierarchy of an association consists of:

  • Board of Directors establishes policies and procedures.
  • Management Company executes policies and procedures as established by the Board of Directors.
  • Committees research and make recommendations to the Board of Directors who then makes the final decision, i.e. Newsletter Committee, Architectural Committee, Rules Committee and Grounds Committee.
  • Sub-Contractors are professionals hired to perform services for the association. The Management Company oversees the sub-contractors.

Q: What types of insurance does an association need to (or should) have?

A: In order to protect your interests in the association, the following types of insurance cover your association. Insurance requirements vary according to your property type and legal documents. Always call upon your Association’s insurance agent when considering purchasing a policy or when increasing or decreasing coverage or deductible. The following examples show various types of insurance available to homeowner associations:

  • Property Damage (fire).
  • General Liability (common area injuries).
  • Directors & Officers/Errors & Omissions (questionable business judgments by your Board).
  • Workers compensation** (protects against financial liability caused by injury to employees).
  • Fidelity Bond (protects against theft of association dollars).
  • Earthquake Insurance (optional).
  • Flood Insurance (optional).

**Many associations may not require a workers’ compensation policy since the association may not have any paid employees (this holds true mostly for small and medium size homeowner associations). Occasional work performed by a plumber, an electrician or a garage repairman - these are services performed by independent contractors and not considered employees of the association (always ask for proof of insurance before allowing an independent contractor to provide services).

The majority of claim-related occurrences are covered under the Association’s liability insurance policy. Consult with your associations insurance agent (and your association’s attorney) to see whether having a workers’ compensation policy is necessary for your association. As a general rule, we recommend all Associations carry a workers’ compensation policy. It is a small price to pay for peace of mind.

Q: What are the governing documents?

A: Governing Documents give the Board of Directors authority and direction to govern the association.

The Governing Documents of an Association consist of:

Articles of Incorporation - which provide the legal basis for operating within California Corporation Codes.

By-Laws - which outline how the association shall be governed and deal with the association as a corporation, i.e., elections, assessment collections, terms of office and duties of officers.

CC&Rs - Conditions, Covenants & Restrictions which deal with the physical entities that comprise the association, i.e., use restrictions, easements, and annexation.

Rules and Regulations - Rules and Regulations (sometimes called “House Rules”) adopted by the Board of Directors within the guidelines of the CC&Rs. Examples would be leash rules and fines for improper parking.

State Statutes - California Corporation and Civil Codes are legislated statutes that take precedence over all other legal documents, i.e., your association may have provisions for a 15% late charge, however, Civil Code 1366 states that, unless the Documents specify a smaller amount, your late fee can be no more than 10% or $10, whichever is greater. Because California Civil Codes take precedence, your association cannot charge 15%.

Budget - Annual Budget prepared and distributed in accordance with Civil Code 1365. Your budget consists of anticipated operating expenses for the year as well as an outline of reserve allocations. Operating expenses include utilities, and maintenance of your association’s common areas. Your Reserve Fund (also known as a “Replacement Fund”) is a type of savings account which covers (future) major association expenditures and replacements such as roofs, painting, pump/motor replacement, central hot water boiler and/or water storage tank.

Deed to Common Area - You, as the homeowner, own an undivided portion of the common area either through your deed or the corporation that you are a member of.

Election Procedures, Secret Ballots and Inspectors of Election - These provisions delineate the process by which elections and votes are conducted. They can be adopted as a supplement to your Rules and Regulations policy, or, preferably, they become an amendment to your existing governing documents (By-laws and/or CC&Rs). Effective July 1, 2006, you may find such provisions in the governing documents of new associations. Otherwise, most associations should have their legal counsel prepare these provisions to be in compliance with Civil Code 1363.03.

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